Schwab Could Survive Fleeing Depositors: CEO

News March 23, 2023 at 01:02 PM

Share & Print

Charles Schwab would remain standing even if its depositors decided to flee, the firm's CEO told The Wall Street Journal in a story published today.

"There would be a sufficient amount of liquidity right there to cover if 100% of our bank's deposits ran off," Schwab co-Chairman and CEO Walt Bettinger told the paper, "without having to sell a single security."

The company could use various strategies to cover any capital shortfall, including issuing CDs, borrowing from the Federal Home Loan Bank and collecting interest paid on its bond holdings, the Journal reported.

The article cited significant differences between Schwab and SVB, although both firms, and other banks, invested heavily in long-term bonds that lost value when the Federal Reserve started its unexpectedly aggressive series of rate hikes to tackle high inflation.

Schwab's bond portfolio had more than $11 billion in unrealized losses at year-end 2022, when it held more than $6 million in its tangible common equity, the Journal reported.

Its shares, along with some other financial stocks, have been battered as investors worry that unrealized losses in its bond holdings could lead to problems like those that drove Silicon Valley Bank's recent collapse, the Journal noted.

Year to date, Schwab's stock is down 32.3% and was trading at $55.47 as of 12.30 p.m. Thursday.

Last week, Bloomberg reported that two Schwab Value Advantage Money funds had $8.8 billion of net outflows between March 13 and 15. During the same period, though, inflows into Schwab's government and Treasury funds totaled about $14 billion.