Charles Schwab Is Trading Like It’s About to Explode, Is That Really the Case? – The Average Joe
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    Charles Schwab Is Trading Like It’s About to Explode, Is That Really the Case?

    victorlei

    March 28, 2023

    It’s quiet. Too quiet…

    But one major financial institution is still trading like something’s wrong — Charles Schwab — one of the largest US banks and trading brokerages with $7T+ in assets.

    Its stock is down ~30% since the start of March — swept into the bank panic in recent weeks.

    What’s happening with Charles Schwab?

    Like SVB, Schwab took customers’ deposits and invested them into long-term bonds — now sitting on $29B in unrealized losses.

    • It’s ok: As long as Schwab holds those bonds until maturity, the losses will go away.
    • It’s not ok: If mass customer withdrawals forced Schwab to sell those bonds — the losses will be “realized” into actual losses today.

    Classic prisoner’s dilemma: Safe if no one sells, danger if everyone pulled their money out.

    Last week, the CEO said, “there is a near-zero chance we’d need to sell” these assets, and even if 100% of deposits were withdrawn, they’d be able to cover it.

    Is Schwab really different? Nearly 20% of its deposits are uninsured — much lower than SVB’s 94%, and it isn’t overexposed to one sector (i.e., tech, crypto). But if something were to happen, the impacts could be much larger.

    Investors: The case for Charles Schwab

    In a detailed analysis, Substack writer Scuttleblurb makes several cases:

    • If return to “pre-SVB days,” the stock could see >30% upside back to its $70 levels.
    • While not impossible, an unlikely Charles Schwab collapse could turn into “one of the biggest financial events in years.”

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