Historically, Charles Schwab derived most of its revenue from the brokerage business through things like direct commissions, transaction fees and payment for order flow. Thus, there is no need for most of Charles Schwab’s customers to panic, drastically reducing the likelihood of a run on deposits. "More than 80% of our total bank deposits fall within the (Federal Deposit Insurance Corporation) insurance limits," said the company in a statement, which is in stark contrast to Silicon Valley Bank, where most deposits fell well outside the FDIC range. Total client assets were $7.38 trillion as of the end of February, though the vast majority of these assets were in investments of various types, so in the case of a sale, their expenses would be covered by the buyers. Charles Schwab reassured investors it has “access to significant liquidity,” which includes approximately $100 billion from cash on hand, portfolio-related cash flows and estimated net new assets for the next 12 months, as well as $8 billion per month in retail CD issuances and $300 billion in short-term loan capacity. Is it a possibility the company could run out of cash? It seems unlikely. Moreover, the company said, “we still believe client cash realignment decisions will largely abate during 2023.” Since client cash realignment trends would only be likely to change if the Federal Reserve were to stop hiking interest rates or lower them again, we can surmise Charles Schwab is betting on rate hikes being done with by the time 2024 rolls around, though of course that is all speculation for now. In light of the Silicon Valley Bank situation, Charles Schwab took the initiative on its February report to allay investors’ fears, noting these developments were well within its expectations of client cash realignment decisions. Part of the recent panic surrounding Charles Schwab is likely due to the company’s February 2023 monthly activity report released on Monday, which revealed it had experienced a 28% decline in margin balances and a 4% decline in total client assets compared to the same month of 2022.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |