Schwab Should Split From Its Bank: JPMorgan

Rising concerns over pending regulatory changes and customers moving cash to higher yielding accounts in the wake of several regional bank collapses have erased more than $60 billion in market value from Schwab's January highs.

While Schwab has the ability to weather new potentially onerous regulations, without its bank the broker could have a higher valuation even though such a divorce would dent earnings, according to Worthington.

"Schwab, as a broker that owns a bank, could theoretically de-bank, and return to operating the way it did historically, which was a focus on sweeping cash into money market funds and earning an elevated management fee rather than an even larger spread," he wrote.

While Schwab could operate without a bank, such a change would be costly and is an outcome the firm's management would be unlikely to support, Worthington said in his note.

But Worthington, who holds the buy-equivalent recommendation and one of the highest price targets on Wall Street, says a Schwab without a bank could be worthwhile in investors' eyes given the cash-sorting and regulatory uncertainties.

"A path toward debanking Schwab certainly feels like last resort type of option at this juncture," he wrote. "That said, we think it is worthwhile to consider as we think it puts a trough scenario for Schwab's stock today."

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