Schwab Impervious To A Bank Run? CEO Says Firm Is 100% Insulated If Depositors Flee

Zinger Key Points
  • "Liquidity is sufficient to cover all deposit outflows," Charles Schwab's CEO Walt Bettinger says.
  • Charles Schwab shares have materially underperformed other brokers since the start of the banking crisis.

On the day after U.S. Treasury Secretary Janet Yellen ruled out the idea of a complete bank deposit guarantee, Charles Schwab Corporation SCHW, the tenth largest bank in the U.S., came out and reaffirmed the soundness of its liquidity position and balance sheet.

In an exclusive interview with the Wall Street Journal, Charles Schwab's co-chairman and CEO Walt Bettinger declared "there would be a sufficient amount of liquidity right there to cover if 100% of our bank's deposits ran off."

Benzinga verified the business had a Liquidity Coverage Ratio of 122.5% in the fourth quarter of 2022.

Bettinger also stated that at Schwab, fewer than 20% of deposits exceed the insurance level, in contrast to SVB, where 90% of deposits exceeded the barrier.

Read more: Barclays Maintains Equal-Weight Rating for Charles Schwab: Here's What You Need To Know

Schwab's Achilles Heel Is The Bond Portfolio: Schwab's unrealized losses on its hold-to-maturity bond portfolio were $11 billion by the end of 2022, substantially exceeding its tangible common equity of just over $6 billion. Yet, the majority of those assets were government-backed mortgage bonds, which are widely regarded as secure. 

As WSJ reported, Schwab invests more than 80% of its deposits in different liquid fixed-income instruments. After the bond market crashed last year, Schwab's deposits dropped 17% year on year by the end of 2022.

Charles Schwab Substantially Underperformed Peers In March: From the beginning of the month, Charles Schwab significantly lagged behind its peers in the brokerage industry. 

After the banking crisis and the collapse of Silicon Valley Bank, Charles Schwab shares have lost about 30% of their value. 

LPL Financial Holdings, Inc. LPLA shares have declined by 17%, Raymond James Financial, Inc. RJF by 15%, Stifel Financial Corp. SF by 11%, and Robinhood Markets Inc. HOOD by 10%. 

Interactive Brokers Group, Inc. IBKR and Virtu Financial, Inc. VIRT have only lost 6-7%, while Tradeweb Markets, Inc. TW has gained 5%.

Photo: Shutterstock

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