Analysts at Bank of America Global Research are well-aware that shares of Charles Schwab Corporation (NYSE:SCHW) are down 35% this year amid the regional banking debacle, and they see further downside to its valuation: here’s why.

The Schwab Analyst: Craig Siegenthaler reiterated an Underperform rating and lowered the price target from $75 to $58.

Check out Schwab's analyst ratings here. 

Siegenthaler’s downgrade came as Schwab’s TCE (tangible common equity) ratio, which excludes goodwill, intangibles, and preferred stock, is seen as a headwind to future capital returns.

Regulators may introduce a minimum target for TCE ratio, the analyst said, and Schwab’s current ratio of 1% to 2% may fall below that threshold. This change could require Schwab to retain its free cash flow, limiting its ability to pursue mergers and acquisitions, raise dividends or repurchase stocks for the next three years.

The bank’s liquidity profile is also a cause for concern, Siegenthaler said, noting that its balance sheet size may be at risk longer-term, as elevated sorting activity in 2023 could reduce its net interest margin trajectory.

Further, Bank of America said Schwab’s growth potential may be hindered due to the recent bank collapses. Its institutional channel is seen as more at risk than its retail channel, but it holds about 50% of market share in its RIA custodian business.

Bank of America warned investors in its note to keep an eye on the following challenges at Schwab: TCE ratio, liquidity profile and growth potential. The bank's net interest margin upside is still high, Siegenthaler said, but its balance sheet size may be at risk longer-term.

SCHW price action: Shares of Charles Schwab are trading 0.59% higher Friday to $53.20, according to data from Benzinga Pro.

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