The first quarter report from State Street showed a new wrinkle to how last year’s rapid rise in interest rates is hurting financial companies and is leading to the stock’s worst day in three years. State Street reported misses on the top and bottom lines for the first quarter. The company earned $1.52 per share on $3.10 billion in revenue. Analysts surveyed by Refinitiv were expecting $1.64 in earnings per share on $3.12 billion of revenue. The stock fell more than 9% on Monday, on track for its worst day since March 2020. STT 1D mountain State Street was on track for its worst day since March 2020. Analysts and State Street’s management’s drilled down on a small portion of the company’s business during the conference call — noninterest-bearing accounts. While retail investors are likely more familiar with State Street’s ETF arm, the company’s business clients use State Street’s custody services, which can include keeping cash in operational accounts that earn zero interest. But with ultra-safe U.S. Treasuries and money market funds offering yields near 5%, companies are looking to put that cash to use. CFO Eric Aboaf said on the call that State Street saw the deposits in these accounts fall by about $5 billion from roughly $39 billion in the first quarter, and to continue falling in the second quarter. That shift, even if the money goes into other State Street products, hurts the company’s net interest income because customers are now getting a cut of the interest. “We’re expecting noninterest-bearing deposits to come down another $4 or $5 billion into the second quarter. And if you think about it, when you earn 5% or more for those kind of deposits on the asset side, and then pay zero, that’s a significant amount of NII, right? Every billion dollars is worth $12 million, sometimes $15 million per quarter,” Aboaf said. To be sure, State Street’s total deposit decline for the quarter was less than 5%, and the Boston-based firm said it actually saw inflows over the final three weeks of March. That makes its situation far different than the regional banks that saw tens of billions of outflows when depositors became worried about the impact of higher rates on their balance sheets, leading to the collapse of Silicon Valley Bank. State Street CEO Ronald O’Hanley said on the call that the shift away from noninterest-bearing accounts would cause no change in State Street’s stock buyback plan.