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

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

    Victor Lei — Head of Research

    March 28, 2023

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week, the CEO said, “there is a near-zero chance we’d need to sell” these assets, and even if 100% of deposits were withdrawn, they’d be able to cover it.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