Looks like the financial stock market freakout is taking down more than just regional banks. The U.S.’ largest brokerage, Charles Schwab (SCHW), is feeling the heat too.
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Shares of Schwab are down nearly 30% in the past two trading days, making it the 11th-worst-performing financial stock in the S&P 1500. Investors are concerned that it too might be sitting on a pile of uninsured deposits from high-tech firms as in the case of the failed Silicon Valley Bank. On Monday, shares were down as much as 23%.
This isn’t just a blip. Schwab stock’s drop at its worst point on the day would be the largest percentage decrease on record (based on data that goes back to Sept. 23, 1987), according to Dow Jones. The stock fell five of the past six days. And it’s its worst three-day drop on record.
The ramifications for the stock market are enormous. Schwab is arguably the largest online brokerage, with $7.4 trillion of investors’ assets as of March. There are more than 34 million accounts at the firm. More than 80% of bank deposits are FDIC insured, Schwab says.
Schwab is vocally defending its financial strength: “Schwab has a broad base of high-quality customers across multiple lines of business, capital well in excess of regulatory requirements, a high-quality and relatively small loan book, and a conservative investment portfolio that is 80% comprised of securities backed by the U.S. Treasury and various government agencies,” said Mr. Charles Schwab and CEO Walt Bettinger in a joint statement.
What This Means For Customers
What does this mean for customers? Keep in mind that bank accounts at Schwab are FDIC insured for up to $250,000. Also, securities and cash in brokerage accounts are insured by SIPC for up to $500,000 ($250,000 limit for cash).
And that in itself makes Schwab’s situation much different than Silicon Valley Bank’s, says Dean Kim, head of research at William O’Neil.
“SCHW is a different story from SIVB in that SIVB had a concentrated segment of the deposit market, namely (private equity) companies as their major deposit customers,” Kim said. “SCHW, on the other hand, is more main stream and across different customer segments. In addition, SCHW is insured by SIPC up to $500,000 per account, higher than $250,000 for FDIC and banks.”
And on Monday, Citi upped its rating on the bank’s stock to “Buy” from “Hold,” Barron’s reported.
It all boils down to human behavior. “When you are dealing with customer deposits, whether they be a bank, asset manager or brokerage, you run the risk of failure if most of the customers decide to pull their money out in a short period of time. This is regardless of how strong the balance sheet is,” Kim said.
“So as long as people do not panic and pull their money out from SCHW all at the same time, SCHW should be able to weather this storm,” Kim said.
Biggest Financial Two-Day Drops
| Company | Ticker | 2-day change |
|---|---|---|
| First Republic | (FRC) | -80.2% |
| Customers Bancorp | (CUBI) | -72.9% |
| PacWest Bancorp | (PACW) | -72.2% |
| Comerica | (CMA) | -46.8% |
| East West Bancorp | (EWBC) | -41.9% |
| KeyCorp | (KEY) | -38.0% |
| Zions Bancorporation | (ZION) | -36.4% |
| UMB Financial | (UMBF) | -32.8% |
| Bank of Hawaii | (BOH) | -30.6% |
| Fifth Third Bancorp | (FITB) | -29.0% |
| Charles Schwab | (SCHW) | -28.9% |
Follow Matt Krantz on Twitter @mattkrantz
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