Shares Of Charles Schwab Fall 11%, But Rally As Firm Defends Finances

(CTN News) – A deep drop in Charles Schwab shares was seen on Monday as the financial institution defended its portfolio, easing fears of a banking crisis following the collapses of tech-focused Silicon Valley Bank and crypto-related Signature Bank.

The Westlake, Texas-based financial company last fell about 11% after falling as much as 23.3% earlier. There was a time when the stock was on track to experience its worst one-day decline ever.

Along with other financial firms, Charles Schwab suffered from large bond holdings with longer maturities. It is feared that these firms, like Silicon Valley Bank, will have to sell these holdings early at large losses to cover deposit withdrawals. Charles Schwab update did emphasize that it has easy access to liquidity and a low loan-to-deposit ratio.

Schwab said that focusing on unrealized losses in HTM portfolios has two logical flaws.

The securities will mature at par, and as a result, there is very little chance that we would need to sell them before they mature (as their name implies).
Secondly, by focusing on unrealized losses in HTM securities, but not in traditional bank loan portfolios, the analysis penalizes firms like Schwab that have a higher quality, more liquid, and more transparent balance sheet.

Approximately 80 percent of Charles Schwab total bank deposits are insured by the Federal Deposit Insurance Corporation and its business continues to perform exceptionally well.

Is there an entry point that is compelling?

By the end of 2022, Charles Schwab will have $7.05 trillion in assets and 33.8 million active brokerage accounts. According to Wall Street analysts, it will not be subject to a run like SVB due to the way it deposits money with retail brokerages and its ample liquidity.

Due to strong supplemental liquidity sources, Piper Sandler’s Richard Repetto said Monday that SCHW will not be required to sell HTM securities in order to meet withdrawal requests. Analysts continue to rate the stock as overweight.

Charles Schwab presents limited deposit flight risk, and its current valuation levels make it an attractive entry point for investors, according to Citi analyst Christopher Allen.

Shares of Schwab are down 36% in 2023, down 43% from their 52-week high.

As a result of SVB’s collapse, the United States experienced its largest banking failure since the 2008 financial crisis – the second-largest ever. SVB and now shattered Signature Bank depositors were backed up by regulators, seeking to ease concerns about systemic contagion.

The stock price of First Republic Bank dropped more than 70% on Monday after it announced Sunday it had received additional liquidity from the Federal Reserve and JPMorgan Chase.

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