Charles Schwab (SCHW) shares continued their recent slide even as the discount brokerage tried to convince investors that it is not facing similar threats to those that brought down Silicon Valley Bank.
CFO Peter Crawford wrote in the company’s monthly activities highlights report that Schwab’s business “continues to perform exceptionally well,” noting that last month’s core net new assets of $41.7 billion were the second highest for a February in history.
Crawford added that client outflows in February were $5 billion less than in January, and so far in March, the daily average outflows are consistent with those of last month. He pointed out that more than 80% of its total bank deposits fall within FDIC insurance limits.
Schwab was taking hits along with other financial firms with massive bond holdings of longer maturities. The fear is that these firms, like Silicon Valley Bank, would need to sell these holdings early at large losses in order to cover deposit withdrawals. But Schwab in its update sought to reiterate that it has plenty of access to liquidity and a low loan-to-deposit ratio.
“Focusing attention on unrealized losses within HTM (Held-to-Maturity portfolio) has two logical flaws,” Schwab said. “First, those securities will mature at par, and given our significant access to other sources of liquidity there is very little chance that we’d need to sell them prior to maturity (as the name implies).”
“Second, by looking at unrealized losses among HTM securities, but not doing the same for traditional banks’ loan portfolios, the analysis penalizes firms like Schwab that in fact have a higher quality, more liquid, and more transparent balance sheet,” the firm added.
Schwab also noted that more than 80% of its total bank deposits fall within the insurance limits of the Federal Deposit Insurance Corp., adding it has “access to significant liquidity” and its business continues to “perform exceptionally well.”
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Why Charles Schwab Is Taking a Beating Along With Bank Stocks
On Thursday, bank stocks got hammered, and so did shares of Charles Schwab which dropped 13%. On Friday the pain continued, with the brokerage suffering another 6% decline by midday. Wait, what?
No doubt many investors are scratching their heads as to why Schwab (ticker: SCHW) would fall in line with bank stocks. The firm is synonymous with investing, not checking and savings.
Schwab’s shares are down more than 37% in 2023, off 44% from their 52-week high.
SVB’s collapse marked the largest U.S. banking failure since the 2008 financial crisis — and the second-biggest ever. Banking regulators rushed to backstop depositors with money at SVB and now shattered Signature Bank, seeking to ease systemic contagion fears.
First Republic Bank saw a more severe sell-off on Monday, down more than 70%, after it said Sunday it had received additional liquidity from the Federal Reserve and JPMorgan Chase.
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