schwab-pares-declines-after-brokerage-seeks-to-calm-investors

Schwab Pares Declines After Brokerage Seeks to Calm Investors

Business

(Bloomberg) — Charles Schwab Corp. rebounded from a record intraday decline after the online brokerage sought to reassure investors that it has sufficient liquidity to handle any volatility following the collapse of Silicon Valley Bank.

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Shares of Westlake, Texas-based Schwab dropped 8.8% to $53.52 at 1:48 p.m. in New York after plunging as much as 23% early in the session. The stock has tumbled 36% this year.

The brokerage firm, which also owns a bank, has “ample liquidity” to meet client withdrawals, Piper Sandler analyst Rich Repetto said Monday in a research note. Schwab’s deposits are largely from retail brokerage clients not prone to “the level of rapid deposit outflows” that hit Silicon Valley Bank because of its commercial clients.

Schwab’s shares tumbled last week as depositors pulled money from Silicon Valley Bank and investors questioned the strength of balance sheets at smaller lenders, including First Republic Bank, PacWest Bancorp and Western Alliance Bancorp. New York-based Signature Bank was closed by regulators on Sunday.

While the biggest US banks are subject to the most stringent regulations, “only a few” lenders may have problems similar to those at SVB Financial Group’s Silicon Valley Bank, former Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said in a tweet.

Schwab, like SVB, has a large investment securities portfolio and is sitting on significant paper losses in its held-to-maturity books. The firm transferred almost $189 billion of securities to a held-to-maturity basis last year, and had $14 billion of unrealized losses on that portfolio of agency mortgage-backed securities at year-end. Unlike SVB, however, most of Schwab’s customer deposits are insured.

“Given our significant access to other sources of liquidity there is very little chance that we’d need to sell them prior to maturity,” Chief Financial Officer Peter Crawford said in a statement.

‘Safe Port’

Founder and Co-Chairman Charles Schwab and CEO Walt Bettinger said in a separate statement that the firm has a broad base of customers and capital in excess of regulatory requirements.

“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.

At the end of February, Schwab had $7.38 trillion of client assets and 1.7 million banking accounts.

Schwab, which said in its most recent annual report that it relies heavily on cash balances for revenue, experienced outflows in recent months from its bank sweep accounts as clients sought higher yields. As a result, its banking subsidiaries began to raise additional funding from the Federal Home Loan Bank system. The company also issued $9.4 billion of retail brokered certificates of deposit this year, according to the filing.

The outflows were about $5 billion lower in February than in January and the company expects they will “largely abate in 2023,” Crawford said.

Schwab said it has access to about $100 billion of cash flow, more than $300 billion of incremental capacity with the FHLB and other short-term facilities, and that more than 80% of deposits at its bank are insured by the Federal Deposit Insurance Corp.

–With assistance from Michael J. Moore and Miles Weiss.

(Updates with Blankfein tweet in fifth paragraph.)

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