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Ask HN: What is going on with Charles Schwab? Stock drop near 40% post SVB chaos

Hi, Charles Schwab does not have too much of a deposit exposure, however it is going down exactly like SVB and First Capital. Any explanations?

hnthrowaway0315 4y ago
Same question. Our company is using it for RSU so concerned.
- guywithabowtie 4y ago
  Yes, Schwab is pretty much deep into that business.
- paulusthe 4y ago
  It's overreaction. Schwab is in a completely different tier than svb, didn't manage its assets like svb, and even if it did, the new Fed facility will allow Schwab to get face value loans on its collateral. You're fine. Everyone is fine.
  - hnthrowaway0315 4y ago
    It's probably an attack not an overreaction I think...
    - paulusthe 4y ago
      Bank runs always have a psychological component, just to varying degrees. This reeks of fear, because the underlying logic (that Schwab might have the same liquidity issues as svb) is simply not the case as of yesterday. The Fed is giving loans on collateral valued at face value, not market value. Any bank with svb like symptoms is now immune from failure. The only thing that should bring a bank down now is outright fraud or horrific asset allocation, meaning specifically assets the feds refuse to lend against. So if Schwab was buying Indonesian subprime MBS, sure, there's a problem. But they almost certainly were just doing what every other bank does, which means they qualify for the Fed lending facility
rogerkirkness 4y ago
The issue is that banks are holding lots of long term treasury bonds with low yields that are worth less than they bought them for. If I wanted to sell you something that locked your money in for 10 years and yielded you 2% in 2023 you'd say not unless I get a sweet discount against the interest I could earn, right? Well banks bought like trillions of dollars worth of aforementioned treasuries.
- guywithabowtie 4y ago
  Like I said, charles schwab is mostly a broker. They do not have tons of deposits with them.
  - sowbug 4y ago
    Are you asking us or telling us? Schwab is the eighth largest bank in the US.
    - guywithabowtie 4y ago
      I may be wrong ! The news source was incorrect in that case.
      - rabidonrails 4y ago
        From Schwab's press release: "More than 80% of our total bank deposits fall within the FDIC insurance limits, among the five highest ratios of the top 100 banks in the United States."
  - PeterisP 4y ago
    They do have some 366 billion of deposits according to https://finance.yahoo.com/quote/SCHW/balance-sheet/ https://finance.yahoo.com/quote/SCHW/balance-sheet/ , twice as much as SVB had.
    - guywithabowtie 4y ago
endisneigh 4y ago
irrationality. Schwab isn't in the same situation as SVB.
- avelis 4y ago
  Came here to say the same.
dom96 4y ago
So right now all I have on Schwab is some investments (i.e. no cash). In the event of a bank run it's only cash that is at risk, right?
- avelis 4y ago
  Schwabs checking accounts are FDIC insured up to $250K. But to be clear a bank run on Schwab isn't happening. They have 7.13 trillion USD in Assets Under Management. And I am certain it isn't all in low-yield bonds.
  - Scoundreller 4y ago
    Most of their AUM is actual security holdings by investors, and should be held 1:1. They can’t dip into that to cover losses elsewhere. The question is where they’re investing the float. Investments of float accounts for a big proportion of brokerage profits (along with payment for order flow): > 57% of Schwab’s revenues are from net interest. The firm could literally give away every other service; discount the mutual fund fees to zero, do away with commissions, etc etc, and they would still be profitable. > Schwab isn’t even the leader among discount brokerages in dependence on net interest. That would be E*TRADE, at about 67% of revenues. Interactive Brokers makes 49% and TD Ameritrade 51% in the segment. https://www.kalzumeus.com/2019/6/26/how-brokerages-make-money/ https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone... Stock trading commissions in USA for a while have basically been a scam and it’s only because Robinhood came along that that source of revenue is gone to $0. That might result in more risk-taking on the float side.
- Scoundreller 4y ago
  Yes, your stocks/shares should be fine (I’m unwilling to guarantee anything for anyone), unless they were a total fraud like Bernie Madoff that didn’t actually invest your money as they said. The cash in your brokerage account would be covered by sipc, not fdic. Sipc does have its limits for what it guarantees, I guess anything over that would be based on recoveries in the event of a default: https://www.firstrepublic.com/insights-education/sipc-vs-fdic-insurance-protection-differences https://www.firstrepublic.com/insights-education/sipc-vs-fdi...
guestbest 4y ago
People are probably withdrawing money to put in to assets.
- antibasilisk 4y ago
  it seems like alot of that is BTC, people are using it to get around ATM withdrawal limits
albatross13 4y ago
The president of the USA just announced, on live television, "investors will not be protected in the event a bank fails". So the investors are all pulling their money out and putting it elsewhere.
- christkv 4y ago
  Shareholders
- rabidonrails 4y ago
  Investors = the people who have ownership of the bank (think stockholers) Depositors = people who have deposits sitting in the bank. Though of another way: If you bought SVB on Robinhood then that stock isn't worth anything anymore. If you have money _in_ SVB then it will be available.
  - causi 4y ago
    If you bought SVB on Robinhood then that stock isn't worth anything anymore. Would it be worth anything after SVB is bought by a larger bank, or does the takeover process zero out shareholders?
    - onlyrealcuzzo 4y ago
      SVB stock is worthless. Doesn't matter if another bank buys the assets & liabilities.
  - albatross13 4y ago
    Investors pulling out are the reason the stock is down 40%, silly goose.
    - rabidonrails 4y ago
      But your initial quote is not new information, it's always true. If a company goes out of business then the investors aren't "made whole" by the government, this is a risk of owning stock. Biden isn't providing new information, he's simply scoring political points because it would look terrible if the government was backstopping investors.
mattnewton 4y ago
Best I can think of is that people are selling anything financial heavily used by Silicon Valley tech companies, after the SVB shareholders were pretty much confirmed to be getting nothing. Schwab is probably the most popular broker for tech RSUs, and so a ton of tech workers have Schwab accounts. Maybe people think that there is a chance tech employees will be withdrawing en masse? That still doesn’t make sense to me, since it’s primarily a brokerage in that industry and the broker relationship is totally different from a bank. They actually have your shares and they can wait a few days for the sale to clear before giving you cash. Maybe lots of people also bank with them out of convenience? Again, doesn’t make sense to me, they are large enough to require stress tests that SVB didn’t take. No rational case makes sense to me yet, so I am betting it’s the simple association as a financial service the tech industry uses.
zie 4y ago
> Charles Schwab does not have too much of a deposit exposure They literally own a bank. Are you sure about this perspective?
- deleted 4y ago
  [deleted]
2d8a875f-39a2-4 4y ago
Ticker confusion?
avelis 4y ago
This a small reminder that Schwab has trillions in Assets Under Management. Unlike SVB, they can't skip the regulatory stress test audits like SVB could because they are so large. Unless they are fraudulently presenting false data, I am personally doubtful of that. So, this is literally the market reacting the news of SVB & SBNY going into receivership and taking a dump in the whole financial sector.
- guywithabowtie 4y ago
  If that was the case, you would see similar drop into JP Morgan Chase as well. However it is very different. Charles Schwab has dropped exceptionally.
  - mattnewton 4y ago
    JP Morgan isn’t really seen as being “exposed” to tech, in the way Schwab is. Schwab has a ton of customers in Silicon Valley, a lot of the big tech companies use them for RSU disbursement. So maybe the drops are seen as % exposure to Silicon Valley tech? Not saying the drop is rational, just trying to explain it to myself too.
    - pksebben 4y ago
      obvious gpt is obvious. I think you meant Charles Schwab there, Mr GPT.
      - mattnewton 4y ago
        Whoops, or a lack of coffee And phone autocorrect. Thanks, fixed.
    - rabidonrails 4y ago
      I believe that Schwab is not a money center bank. The money center banks have federal requirements to keep a large amount of their cash liquid. In this case that's providing them converage because this bank run wouldn't really have a devastating effect on them. Examples of the money center banks are Chase, BofA, WFC, and Citigroup. The regulations that required that cash had been, in the past, seen as a detriment to the banks and people argued that the regionals would be strangled if they had the same requirements. Right now specifically, it's not great to be really large but not a money center bank.
wazoox 4y ago
My 2 cents: Banks are required by Bale III rules to guarantee the money they lend with a proportional amount in proper assets. Those assets are mostly US treasury bonds (for US banks; EU bonds for EU banks, etc). Treasury bonds from the past few years come with very low interest rates or even zero, or negative ones. As the Fed's rates (and other central bank's rates) have been climbing rapidly in the past few months, new bonds come with quite hefty interest rates. Therefore old bonds with near-zero rates cratered on the second-hand market. And who owns tens of thousands of billion dollars in these bonds? The banks... So each and every bank will try to realise its bonds to pay back the deposits that people hit by SVB's failure are trying to get their hands on, will see its actual value crater, with the compounding effect that an even larger amount of free-falling bonds will flush the second-hand market... So the whole bond market may crater, and all the banks with it, and the whole financial system. Every central banker around the world is currently sweating out a way out of it, if there's any (maybe the cat is out of the bag already). Have a good day :)
- onlyrealcuzzo 4y ago
  Or the Fed will just announce TARP 2.0 - like they already did - and allow banks to get unlimited capital by borrowing against MBSes and Treasuries at PAR value.
  - wazoox 4y ago
    That's probable, but what about inflation? :)
    - onlyrealcuzzo 4y ago
      Inflation is a very minor issue compared to financial stability...
Stranger43 4y ago
There a bubble bursting right now as people are realizing that the "not yet made it" startups that got founded doing the age of cheap money is probably not going to make it into profitable enterprises in the current climate of increasing inflation and the resulting reduction in spending by almost all types of consumers. This mean that just about any financial organization dependent on the success of the American startup sector for profits is at risk.
- rabidonrails 4y ago
  But to OP's question, Schwab probably wouldn't fall under "dependent on the success of the American startup..."
  - guywithabowtie 4y ago
    I am just worried in general about them, They are too big and a lot of people have exposure in this case to them in one way or other.
  - Stranger43 4y ago
    No in this case it's probably a case of them holding too many low interest bonds and being dependent on markets that are in trouble for "profits" meaning that they are probably going to eat capital rather then pay dividends for a long time to come(companies can loose stock value without going bankrupt overnight). The world changed dramatically over the last few years and that's going to hit some sectors harder then others and the sectors that's hurting the most is finance and tech so the companies that have huge exposure to both and not a lot of assets in energy, food and infrastructure is probably going to see losses in the years to come.
- LatteLazy 4y ago
  Actually both SVB and Charles Swap have the opposite problem: The fall in value of long/medium term treasuries is what is killing them, not loans to start ups...
deleted 4y ago
[deleted]
rabidonrails 4y ago
You should read their press release from this morning: https://pressroom.aboutschwab.com/press-releases/press-release/2023/Schwab-Reports-Monthly-Activity-Highlights-e564be671/default.aspx https://pressroom.aboutschwab.com/press-releases/press-relea...
- ericpauley 4y ago
  > More than 80% of our total bank deposits fall within the FDIC insurance limits That's all you need to hear right there.
  - s1artibartfast 4y ago
    Why would that be the key takeaway? It says nothing about their liquidity. It just means that there are fewer people incentivized to make a run.
    - ericpauley 4y ago
      As long as (FDIC Deposits + Clearly liquid assets) >> 100% it’s hard to imagine a bank failure unless people are profoundly stupid.
- rattray 4y ago
  My tiny summary: They have a _ton_ of liquidity (~$100 billion) so "hold to maturity" unrealized losses aren't going to have to be realized - they can just hold them to maturity. Also, they claim all their fundamentals are strong and improving with booming deposits, strong margins, etc. What's more, 80% of their deposit base is fully covered by FDIC insurance.
rmnwski 4y ago
They have a similar percentage of held to maturity unrealized losses to equity as SVB. So, not good. Charles Schwab $SCHW 4Q22 Held-to-maturity unrealized losses $15,580 mln / Tangible common equity $17,439 mln = HTM losses of equity 89% Compared to Silicon Valley Bank $SIVB 4Q22 Held-to-maturity unrealized losses $15,160 mln / Tangible common equity $11,880 mln = HTM losses of equity 128% source: https://twitter.com/hkeskiva/status/1634982958087159809 https://twitter.com/hkeskiva/status/1634982958087159809
- paulusthe 4y ago
  This is no longer a problem, because the Fed facility created yesterday allows firms to get face value loans against their collateral. So even if Schwab has a 10% asset decline in m2m terms, it can still borrow at full price from the Fed for up to a year. There's no liquidity risk anymore. This is just overreaction
  - Scoundreller 4y ago
    What happens after a year? If you’ve locked yourself long-term into a below-prevailing-rates investment, isn’t that going to be a big problem when your competitors can offer higher rates? This kinda happens with fuel cost hedging in aviation: if your airline locks itself into a high rate and prices drop, your competition buying at spot is going to offer better fares and you’ll bleed customers. And vice-versa when you lock yourself into a price that becomes below-market: you’ll be able to offer better fares and gain customers. Then comes down to whether you have enough equity to bleed (or hood enough marketing) to weather the storm created.
    - paulusthe 4y ago
      If it's still a problem in a year, the Fed will either extend it or possibly just buy the assets themselves, in a better-collateral version of QE. There's no harm in holding these assets to maturity. They're fine assets, they're just not paying as much interest as ones you can get today. But buying and holding them will result in a profit, eventually, barring some calamity
LatteLazy 4y ago
Apparently they put a LOT of cash into treasuries when yields were low. They maybe be in the same position as SVB: * bought a bond for $100 * now it's only worth $80 * so they either hold it for 10 years and get their $100 back or sell now for 80, realise a huge loss and go bankrupt
- hanoz 4y ago
  Why have so many companies been been betting on 200 year low interest rates continuing indefinitely?
  - Stranger43 4y ago
    because none of them did long term statistical modeling or risk evaluation but kept focusing only a few quarters ahead.
  - s1artibartfast 4y ago
    Because they need to park Capital somewhere that gives a return, even if it's a small one. It's not a bet that interest will stay low as much as I bet that they as a company will be around in 10 years to see the returns. It's a guaranteed profit if they make it to the finish line.
    - hanoz 4y ago
      Of course it's a bet that interest rates will stay low, as subsequent events have amply demonstrated. Managing to hang on until maturity doesn't magically make it turn into a profit, when you consider the time value of money. The bonds are worth so little today precisely because they're only returning the original amount at maturity, plus 200 year low interest.
  - LatteLazy 4y ago
    In fairness, it worked for the first 48-ish quarters they did that for. And they're rewarded for thinking in quarters, not years. Also, stupidity and laziness.
- 4y ago
pbreit 4y ago
Most of the regional bank stocks have been halted: https://twitter.com/BrianRoemmele/status/1635279537885052928 https://twitter.com/BrianRoemmele/status/1635279537885052928
fghorow 4y ago
Honest question. Schwab owns TD Ameritrade. What happens to customers of TD Ameritrade if Schwab implodes?
photochemsyn 4y ago
This argument is interesting, that it's being driven customers leaving banks that aren't adjusting their returns to the new Fed interest rates, but wouldn't Schwab be a beneficiary then? https://twitter.com/biancoresearch/status/1634979304755822594 https://twitter.com/biancoresearch/status/163497930475582259... > "And, as this chart shows, THIS IS A PROBLEM FOR ALL OF BANKING, not just SVB. All banks, as I noted the retweet below, thought they could offer 0.50% deposit rates (orange) forever and no one would ever move." > "The sleeping giant, the American public, awoke at 5% (blue). Now at cocktail parties instead of regaling their friends about crypto, Ark, or the price of wheat, they are now bragging how they ditch their near 0% yield savings account for a 4.9% Schwab money market account! How smart am I!!" However not all Schwab accounts are at that rate (this seems to come down to FDIC-insured or not), for comparison to Vanguard / Fidelity see (Mar 1 2023): https://www.mymoneyblog.com/charles-schwab-cash-sweep-options.html https://www.mymoneyblog.com/charles-schwab-cash-sweep-option...
- khuey 4y ago
  If Schwab is paying 0.45% and putting the cash in the money market at 4.5% they're pocketing 4%. If their clients go buy the equivalent Schwab money market fund Schwab just gets a few basis points in management fees.
agloe_dreams 4y ago
One fair argument that is going to squeeze the market a bit is that suddenly a LOT of companies just realized that maybe they shouldn't have all/50%/30%/20% their cash in one account. This is going to cause a short run where money is stuck between banks as it slushes around. Most larger banks will probably see increases in deposits. Smaller, more risky banks will likely see more immediate liquidity issues caused by the run and less deposits to cover the money taken out.
- Scoundreller 4y ago
  I could see it going both ways: If I’m a smaller client/business that regularly has $400k in my Bank of America account, I might now split it between BoA and a new account at a small bank down the street just to keep under $250k at all times. Keeping bajillions over fdic limits was always a risky affair. Not sure how many smaller banks actually have/had volumes of accounts like that but I could see SVB being an exception.
  - agloe_dreams 4y ago
    I agree, though I think it is more likely that those over FDIC limits will move from a smaller bank to a more stable larger bank, purely because they have more reason to worry. SVB being an exception is absolutely true though.
titan89 4y ago
Former equity analyst here, but I never covered the banking sector so treat this post like an amateur opinion. I use Schwab as a broker so I took a look at Schwab's financials this weekend. First, Schwab has over $350 billion in deposits. That has declined from over $450 billion at it's peak last year. Unlike the regional banks, I'm guessing that this is less due to capital flight (moving from Schwab to another bank), and more due to customers moving their assets from cash (Schwab pays a pitiful 0.5%), and into higher-yielding assets (like treasuries or money market funds). The assets stay on Schwab, but it still decreases Schwab's deposits and liquidity. Moreover, I was stunned when I saw that Schwab reported over $150 billion in held-to-maturity assets of over 5 year duration (and over $100 billion of that is in bonds of greater than 10 year duration). Again, not a banking analyst (also not sure if some of this is hedged), but this looks very aggressive to me, and could result in a significant $15+ billion loss that significantly impairs tangible book value. Regulators really dropped the ball by not incorporating more stress scenarios based on interest rates. Schwab recently sent a notice that they have a large amount of liquidity, and it is unlikely that they'll need to sell the HTM maturities. Still, there is a concern that Schwab customers will panic and put that to the test. The falling stock price and posts like this will probably raise awareness of Schwab's issues. Personally, I'm pretty disappointed in Schwab, but my opinion is that your brokerage assets are almost certainly safe. Schwab still has a decent cushion (including equity, preferred, and debt), and operates a pretty valuable franchise. Equity holders could be in trouble due to concerns over negative carry though (their long-term HTM assets could yield less than the cost to attract new deposits). Personally, I turned off the margin at Schwab this weekend out of an abundance of caution, to reduce the likelihood that I'll be an unsecured creditor if shit truly hits the fan. However, that will almost certainly not be necessary.
- ad 4y ago
  You have the best post on this thread. One question, since you seem pretty knowledgable: I thought margin accounts were covered under SIPC? Can you send me a link on how with a margin account we are unsecured creditors? I found this one but it didn't really mention being unsecured: https://www.sipc.org/for-investors/investor-faqs#how-are-margin-accounts-protected https://www.sipc.org/for-investors/investor-faqs#how-are-mar... Thanks and great post!
sdfghswe 4y ago
Why was this dropped off the front page? Sounds like majorly interesting.
wgm 4y ago
Thank you for calling my attention to this buying opportunity

Hi, Charles Schwab does not have too much of a deposit exposure, however it is going down exactly like SVB and First Capital. Any explanations?

hnthrowaway0315 4y ago

Same question. Our company is using it for RSU so concerned.

guywithabowtie 4y ago
Yes, Schwab is pretty much deep into that business.
paulusthe 4y ago
It's overreaction. Schwab is in a completely different tier than svb, didn't manage its assets like svb, and even if it did, the new Fed facility will allow Schwab to get face value loans on its collateral. You're fine. Everyone is fine.
- hnthrowaway0315 4y ago
  It's probably an attack not an overreaction I think...
  - paulusthe 4y ago
    Bank runs always have a psychological component, just to varying degrees. This reeks of fear, because the underlying logic (that Schwab might have the same liquidity issues as svb) is simply not the case as of yesterday. The Fed is giving loans on collateral valued at face value, not market value. Any bank with svb like symptoms is now immune from failure. The only thing that should bring a bank down now is outright fraud or horrific asset allocation, meaning specifically assets the feds refuse to lend against. So if Schwab was buying Indonesian subprime MBS, sure, there's a problem. But they almost certainly were just doing what every other bank does, which means they qualify for the Fed lending facility

rogerkirkness 4y ago

The issue is that banks are holding lots of long term treasury bonds with low yields that are worth less than they bought them for. If I wanted to sell you something that locked your money in for 10 years and yielded you 2% in 2023 you'd say not unless I get a sweet discount against the interest I could earn, right? Well banks bought like trillions of dollars worth of aforementioned treasuries.

guywithabowtie 4y ago
Like I said, charles schwab is mostly a broker. They do not have tons of deposits with them.
- sowbug 4y ago
  Are you asking us or telling us? Schwab is the eighth largest bank in the US.
  - guywithabowtie 4y ago
    I may be wrong ! The news source was incorrect in that case.
    - rabidonrails 4y ago
      From Schwab's press release: "More than 80% of our total bank deposits fall within the FDIC insurance limits, among the five highest ratios of the top 100 banks in the United States."
- PeterisP 4y ago
  They do have some 366 billion of deposits according to https://finance.yahoo.com/quote/SCHW/balance-sheet/ https://finance.yahoo.com/quote/SCHW/balance-sheet/ , twice as much as SVB had.
  - guywithabowtie 4y ago

endisneigh 4y ago

irrationality. Schwab isn't in the same situation as SVB.

avelis 4y ago
Came here to say the same.

dom96 4y ago

So right now all I have on Schwab is some investments (i.e. no cash). In the event of a bank run it's only cash that is at risk, right?

avelis 4y ago
Schwabs checking accounts are FDIC insured up to $250K. But to be clear a bank run on Schwab isn't happening. They have 7.13 trillion USD in Assets Under Management. And I am certain it isn't all in low-yield bonds.
- Scoundreller 4y ago
  Most of their AUM is actual security holdings by investors, and should be held 1:1. They can’t dip into that to cover losses elsewhere. The question is where they’re investing the float. Investments of float accounts for a big proportion of brokerage profits (along with payment for order flow): > 57% of Schwab’s revenues are from net interest. The firm could literally give away every other service; discount the mutual fund fees to zero, do away with commissions, etc etc, and they would still be profitable. > Schwab isn’t even the leader among discount brokerages in dependence on net interest. That would be E*TRADE, at about 67% of revenues. Interactive Brokers makes 49% and TD Ameritrade 51% in the segment. https://www.kalzumeus.com/2019/6/26/how-brokerages-make-money/ https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone... Stock trading commissions in USA for a while have basically been a scam and it’s only because Robinhood came along that that source of revenue is gone to $0. That might result in more risk-taking on the float side.
Scoundreller 4y ago
Yes, your stocks/shares should be fine (I’m unwilling to guarantee anything for anyone), unless they were a total fraud like Bernie Madoff that didn’t actually invest your money as they said. The cash in your brokerage account would be covered by sipc, not fdic. Sipc does have its limits for what it guarantees, I guess anything over that would be based on recoveries in the event of a default: https://www.firstrepublic.com/insights-education/sipc-vs-fdic-insurance-protection-differences https://www.firstrepublic.com/insights-education/sipc-vs-fdi...

guestbest 4y ago

People are probably withdrawing money to put in to assets.

antibasilisk 4y ago
it seems like alot of that is BTC, people are using it to get around ATM withdrawal limits

albatross13 4y ago

The president of the USA just announced, on live television, "investors will not be protected in the event a bank fails". So the investors are all pulling their money out and putting it elsewhere.

christkv 4y ago
Shareholders
rabidonrails 4y ago
Investors = the people who have ownership of the bank (think stockholers) Depositors = people who have deposits sitting in the bank. Though of another way: If you bought SVB on Robinhood then that stock isn't worth anything anymore. If you have money _in_ SVB then it will be available.
- causi 4y ago
  If you bought SVB on Robinhood then that stock isn't worth anything anymore. Would it be worth anything after SVB is bought by a larger bank, or does the takeover process zero out shareholders?
  - onlyrealcuzzo 4y ago
    SVB stock is worthless. Doesn't matter if another bank buys the assets & liabilities.
- albatross13 4y ago
  Investors pulling out are the reason the stock is down 40%, silly goose.
  - rabidonrails 4y ago
    But your initial quote is not new information, it's always true. If a company goes out of business then the investors aren't "made whole" by the government, this is a risk of owning stock. Biden isn't providing new information, he's simply scoring political points because it would look terrible if the government was backstopping investors.

mattnewton 4y ago

Best I can think of is that people are selling anything financial heavily used by Silicon Valley tech companies, after the SVB shareholders were pretty much confirmed to be getting nothing. Schwab is probably the most popular broker for tech RSUs, and so a ton of tech workers have Schwab accounts. Maybe people think that there is a chance tech employees will be withdrawing en masse? That still doesn’t make sense to me, since it’s primarily a brokerage in that industry and the broker relationship is totally different from a bank. They actually have your shares and they can wait a few days for the sale to clear before giving you cash. Maybe lots of people also bank with them out of convenience? Again, doesn’t make sense to me, they are large enough to require stress tests that SVB didn’t take. No rational case makes sense to me yet, so I am betting it’s the simple association as a financial service the tech industry uses.

zie 4y ago

> Charles Schwab does not have too much of a deposit exposure They literally own a bank. Are you sure about this perspective?

deleted 4y ago
[deleted]

2d8a875f-39a2-4 4y ago

Ticker confusion?

avelis 4y ago

This a small reminder that Schwab has trillions in Assets Under Management. Unlike SVB, they can't skip the regulatory stress test audits like SVB could because they are so large. Unless they are fraudulently presenting false data, I am personally doubtful of that. So, this is literally the market reacting the news of SVB & SBNY going into receivership and taking a dump in the whole financial sector.

guywithabowtie 4y ago
If that was the case, you would see similar drop into JP Morgan Chase as well. However it is very different. Charles Schwab has dropped exceptionally.
- mattnewton 4y ago
  JP Morgan isn’t really seen as being “exposed” to tech, in the way Schwab is. Schwab has a ton of customers in Silicon Valley, a lot of the big tech companies use them for RSU disbursement. So maybe the drops are seen as % exposure to Silicon Valley tech? Not saying the drop is rational, just trying to explain it to myself too.
  - pksebben 4y ago
    obvious gpt is obvious. I think you meant Charles Schwab there, Mr GPT.
    - mattnewton 4y ago
      Whoops, or a lack of coffee And phone autocorrect. Thanks, fixed.
  - rabidonrails 4y ago
    I believe that Schwab is not a money center bank. The money center banks have federal requirements to keep a large amount of their cash liquid. In this case that's providing them converage because this bank run wouldn't really have a devastating effect on them. Examples of the money center banks are Chase, BofA, WFC, and Citigroup. The regulations that required that cash had been, in the past, seen as a detriment to the banks and people argued that the regionals would be strangled if they had the same requirements. Right now specifically, it's not great to be really large but not a money center bank.

wazoox 4y ago

My 2 cents: Banks are required by Bale III rules to guarantee the money they lend with a proportional amount in proper assets. Those assets are mostly US treasury bonds (for US banks; EU bonds for EU banks, etc). Treasury bonds from the past few years come with very low interest rates or even zero, or negative ones. As the Fed's rates (and other central bank's rates) have been climbing rapidly in the past few months, new bonds come with quite hefty interest rates. Therefore old bonds with near-zero rates cratered on the second-hand market. And who owns tens of thousands of billion dollars in these bonds? The banks... So each and every bank will try to realise its bonds to pay back the deposits that people hit by SVB's failure are trying to get their hands on, will see its actual value crater, with the compounding effect that an even larger amount of free-falling bonds will flush the second-hand market... So the whole bond market may crater, and all the banks with it, and the whole financial system. Every central banker around the world is currently sweating out a way out of it, if there's any (maybe the cat is out of the bag already). Have a good day :)

onlyrealcuzzo 4y ago
Or the Fed will just announce TARP 2.0 - like they already did - and allow banks to get unlimited capital by borrowing against MBSes and Treasuries at PAR value.
- wazoox 4y ago
  That's probable, but what about inflation? :)
  - onlyrealcuzzo 4y ago
    Inflation is a very minor issue compared to financial stability...

Stranger43 4y ago

There a bubble bursting right now as people are realizing that the "not yet made it" startups that got founded doing the age of cheap money is probably not going to make it into profitable enterprises in the current climate of increasing inflation and the resulting reduction in spending by almost all types of consumers. This mean that just about any financial organization dependent on the success of the American startup sector for profits is at risk.

rabidonrails 4y ago
But to OP's question, Schwab probably wouldn't fall under "dependent on the success of the American startup..."
- guywithabowtie 4y ago
  I am just worried in general about them, They are too big and a lot of people have exposure in this case to them in one way or other.
- Stranger43 4y ago
  No in this case it's probably a case of them holding too many low interest bonds and being dependent on markets that are in trouble for "profits" meaning that they are probably going to eat capital rather then pay dividends for a long time to come(companies can loose stock value without going bankrupt overnight). The world changed dramatically over the last few years and that's going to hit some sectors harder then others and the sectors that's hurting the most is finance and tech so the companies that have huge exposure to both and not a lot of assets in energy, food and infrastructure is probably going to see losses in the years to come.
LatteLazy 4y ago
Actually both SVB and Charles Swap have the opposite problem: The fall in value of long/medium term treasuries is what is killing them, not loans to start ups...

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rabidonrails 4y ago

You should read their press release from this morning: https://pressroom.aboutschwab.com/press-releases/press-release/2023/Schwab-Reports-Monthly-Activity-Highlights-e564be671/default.aspx https://pressroom.aboutschwab.com/press-releases/press-relea...

ericpauley 4y ago
> More than 80% of our total bank deposits fall within the FDIC insurance limits That's all you need to hear right there.
- s1artibartfast 4y ago
  Why would that be the key takeaway? It says nothing about their liquidity. It just means that there are fewer people incentivized to make a run.
  - ericpauley 4y ago
    As long as (FDIC Deposits + Clearly liquid assets) >> 100% it’s hard to imagine a bank failure unless people are profoundly stupid.
rattray 4y ago
My tiny summary: They have a _ton_ of liquidity (~$100 billion) so "hold to maturity" unrealized losses aren't going to have to be realized - they can just hold them to maturity. Also, they claim all their fundamentals are strong and improving with booming deposits, strong margins, etc. What's more, 80% of their deposit base is fully covered by FDIC insurance.

rmnwski 4y ago

They have a similar percentage of held to maturity unrealized losses to equity as SVB. So, not good. Charles Schwab $SCHW 4Q22 Held-to-maturity unrealized losses $15,580 mln / Tangible common equity $17,439 mln = HTM losses of equity 89% Compared to Silicon Valley Bank $SIVB 4Q22 Held-to-maturity unrealized losses $15,160 mln / Tangible common equity $11,880 mln = HTM losses of equity 128% source: https://twitter.com/hkeskiva/status/1634982958087159809 https://twitter.com/hkeskiva/status/1634982958087159809

paulusthe 4y ago
This is no longer a problem, because the Fed facility created yesterday allows firms to get face value loans against their collateral. So even if Schwab has a 10% asset decline in m2m terms, it can still borrow at full price from the Fed for up to a year. There's no liquidity risk anymore. This is just overreaction
- Scoundreller 4y ago
  What happens after a year? If you’ve locked yourself long-term into a below-prevailing-rates investment, isn’t that going to be a big problem when your competitors can offer higher rates? This kinda happens with fuel cost hedging in aviation: if your airline locks itself into a high rate and prices drop, your competition buying at spot is going to offer better fares and you’ll bleed customers. And vice-versa when you lock yourself into a price that becomes below-market: you’ll be able to offer better fares and gain customers. Then comes down to whether you have enough equity to bleed (or hood enough marketing) to weather the storm created.
  - paulusthe 4y ago
    If it's still a problem in a year, the Fed will either extend it or possibly just buy the assets themselves, in a better-collateral version of QE. There's no harm in holding these assets to maturity. They're fine assets, they're just not paying as much interest as ones you can get today. But buying and holding them will result in a profit, eventually, barring some calamity

LatteLazy 4y ago

Apparently they put a LOT of cash into treasuries when yields were low. They maybe be in the same position as SVB: * bought a bond for $100 * now it's only worth $80 * so they either hold it for 10 years and get their $100 back or sell now for 80, realise a huge loss and go bankrupt

hanoz 4y ago
Why have so many companies been been betting on 200 year low interest rates continuing indefinitely?
- Stranger43 4y ago
  because none of them did long term statistical modeling or risk evaluation but kept focusing only a few quarters ahead.
- s1artibartfast 4y ago
  Because they need to park Capital somewhere that gives a return, even if it's a small one. It's not a bet that interest will stay low as much as I bet that they as a company will be around in 10 years to see the returns. It's a guaranteed profit if they make it to the finish line.
  - hanoz 4y ago
    Of course it's a bet that interest rates will stay low, as subsequent events have amply demonstrated. Managing to hang on until maturity doesn't magically make it turn into a profit, when you consider the time value of money. The bonds are worth so little today precisely because they're only returning the original amount at maturity, plus 200 year low interest.
- LatteLazy 4y ago
  In fairness, it worked for the first 48-ish quarters they did that for. And they're rewarded for thinking in quarters, not years. Also, stupidity and laziness.
4y ago

pbreit 4y ago

Most of the regional bank stocks have been halted: https://twitter.com/BrianRoemmele/status/1635279537885052928 https://twitter.com/BrianRoemmele/status/1635279537885052928

fghorow 4y ago

Honest question. Schwab owns TD Ameritrade. What happens to customers of TD Ameritrade if Schwab implodes?

photochemsyn 4y ago

This argument is interesting, that it's being driven customers leaving banks that aren't adjusting their returns to the new Fed interest rates, but wouldn't Schwab be a beneficiary then? https://twitter.com/biancoresearch/status/1634979304755822594 https://twitter.com/biancoresearch/status/163497930475582259... > "And, as this chart shows, THIS IS A PROBLEM FOR ALL OF BANKING, not just SVB. All banks, as I noted the retweet below, thought they could offer 0.50% deposit rates (orange) forever and no one would ever move." > "The sleeping giant, the American public, awoke at 5% (blue). Now at cocktail parties instead of regaling their friends about crypto, Ark, or the price of wheat, they are now bragging how they ditch their near 0% yield savings account for a 4.9% Schwab money market account! How smart am I!!" However not all Schwab accounts are at that rate (this seems to come down to FDIC-insured or not), for comparison to Vanguard / Fidelity see (Mar 1 2023): https://www.mymoneyblog.com/charles-schwab-cash-sweep-options.html https://www.mymoneyblog.com/charles-schwab-cash-sweep-option...

khuey 4y ago
If Schwab is paying 0.45% and putting the cash in the money market at 4.5% they're pocketing 4%. If their clients go buy the equivalent Schwab money market fund Schwab just gets a few basis points in management fees.

agloe_dreams 4y ago

One fair argument that is going to squeeze the market a bit is that suddenly a LOT of companies just realized that maybe they shouldn't have all/50%/30%/20% their cash in one account. This is going to cause a short run where money is stuck between banks as it slushes around. Most larger banks will probably see increases in deposits. Smaller, more risky banks will likely see more immediate liquidity issues caused by the run and less deposits to cover the money taken out.

Scoundreller 4y ago
I could see it going both ways: If I’m a smaller client/business that regularly has $400k in my Bank of America account, I might now split it between BoA and a new account at a small bank down the street just to keep under $250k at all times. Keeping bajillions over fdic limits was always a risky affair. Not sure how many smaller banks actually have/had volumes of accounts like that but I could see SVB being an exception.
- agloe_dreams 4y ago
  I agree, though I think it is more likely that those over FDIC limits will move from a smaller bank to a more stable larger bank, purely because they have more reason to worry. SVB being an exception is absolutely true though.

titan89 4y ago

Former equity analyst here, but I never covered the banking sector so treat this post like an amateur opinion. I use Schwab as a broker so I took a look at Schwab's financials this weekend. First, Schwab has over $350 billion in deposits. That has declined from over $450 billion at it's peak last year. Unlike the regional banks, I'm guessing that this is less due to capital flight (moving from Schwab to another bank), and more due to customers moving their assets from cash (Schwab pays a pitiful 0.5%), and into higher-yielding assets (like treasuries or money market funds). The assets stay on Schwab, but it still decreases Schwab's deposits and liquidity. Moreover, I was stunned when I saw that Schwab reported over $150 billion in held-to-maturity assets of over 5 year duration (and over $100 billion of that is in bonds of greater than 10 year duration). Again, not a banking analyst (also not sure if some of this is hedged), but this looks very aggressive to me, and could result in a significant $15+ billion loss that significantly impairs tangible book value. Regulators really dropped the ball by not incorporating more stress scenarios based on interest rates. Schwab recently sent a notice that they have a large amount of liquidity, and it is unlikely that they'll need to sell the HTM maturities. Still, there is a concern that Schwab customers will panic and put that to the test. The falling stock price and posts like this will probably raise awareness of Schwab's issues. Personally, I'm pretty disappointed in Schwab, but my opinion is that your brokerage assets are almost certainly safe. Schwab still has a decent cushion (including equity, preferred, and debt), and operates a pretty valuable franchise. Equity holders could be in trouble due to concerns over negative carry though (their long-term HTM assets could yield less than the cost to attract new deposits). Personally, I turned off the margin at Schwab this weekend out of an abundance of caution, to reduce the likelihood that I'll be an unsecured creditor if shit truly hits the fan. However, that will almost certainly not be necessary.

ad 4y ago
You have the best post on this thread. One question, since you seem pretty knowledgable: I thought margin accounts were covered under SIPC? Can you send me a link on how with a margin account we are unsecured creditors? I found this one but it didn't really mention being unsecured: https://www.sipc.org/for-investors/investor-faqs#how-are-margin-accounts-protected https://www.sipc.org/for-investors/investor-faqs#how-are-mar... Thanks and great post!

sdfghswe 4y ago

Why was this dropped off the front page? Sounds like majorly interesting.

wgm 4y ago

Thank you for calling my attention to this buying opportunity