Schwab Tumbles Most Ever as Firm Seeks to Calm Investors
Comment of the Day

March 13 2023

Commentary by Eoin Treacy

Schwab Tumbles Most Ever as Firm Seeks to Calm Investors

This article from Bloomberg may be of interest to subscribers. Here is a section: 

Charles Schwab Corp. tumbled the most ever on an intraday-basis as the online brokerage sought to reassure investors that it has sufficient liquidity to handle any volatility following the collapse of Silicon Valley Bank.

Shares of Westlake, Texas-based Schwab dropped as much as 23% to $45 after trading was halted for volatility. The stock later pared its decline and was down 17% to $48.93 at 10:09 a.m.
in New York.

The firm has a broad base of customers and capital in excess of regulatory requirements, founder and Co-Chairman Charles Schwab and Chief Executive Officer Walt Bettinger said in a statement on its website Monday.

“Schwab’s long-standing reputation as a safe port in a storm remains intact, driven by record-setting business performance, a conservative balance sheet, a strong liquidity position, and a diversified base of 34 million-plus account-holders who invest with Schwab every day,” the executives wrote.

The company, with roughly $7.4 trillion of client assets, said it has access to about $100 billion of cash flow, more than $300 billion of incremental capacity with the Federal Home Loan Bank and other short-term facilities, and that more than 80% of deposits at its bank are insured by the Federal Deposit
Insurance Corp.

Eoin Treacy's view

Companies like Schwab offered an attractive service to their customers during the big bull market. Instead of selling highly appreciated assets and absorbing the capital gains tax hit, why not offer the stock portfolio as collateral against a loan to buy a new house, car or boat? Real Estate agents I know report that was a major source of funding during the pandemic housing boom.
The downside of that service is if the value of the portfolio of stocks declines, more collateral is required and that makes the firm’s balance sheet look unsteady. Schwab accelerated lower last week and steadied today as both bonds and stocks steadied in the aftermath of the backstop of depositors. A reversionary rally is looking more likely than not. Once that has been completed attention will turn to how much the Fed is going to cut rates by. 

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