Charles Schwab (SCHW.N) has sufficient liquidity, the chief executive of the bank and brokerage said on Tuesday, moving to allay fears about a “doomsday scenario” that has weighed greatly on bank stocks after the collapse of two U.S. lenders since Friday.
“We have not raised capital and we are not in the market at this point for M&A transactions,” Walt Bettinger, CEO of Charles Schwab, told Reuters in an interview.
The company had seen an influx of $4 billion in assets to its parent company on Friday as clients transferred assets to Schwab from other firms, Bettinger said. Schwab on Monday disclosed that total client assets had dropped to $7.38 trillion last month, down 4% compared with the year before.
Bettinger said Schwab was content with the assets on its bank portfolio, which is separate from its brokerage business. He compared it with the portfolios of other firms that had run into trouble.
“Our available-for-sale portfolio is short in duration and high in quality, and our held-to-maturity is slightly longer in duration but still short compared to many people, and very high-quality,” said Bettinger, who has run Schwab since the 2008 financial crisis.
Banks can categorize bonds as “held-to-maturity” (HTM) and are not required to compute changes in value if the securities are kept until they are paid off, or they can keep the bonds as “available-for-sale” (AFS), which means they must compute unrealized losses against capital, but are free to sell the securities at any time.
Schwab’s shares ended Tuesday 9.2% higher at $56.68, along with a broad gain in bank stocks. But Schwab shares are still down 25.6 percent from their close last Wednesday, the day before the majority of bank shares started a downward spiral following problems at Silicon Valley Bank (SIVB.O). Regulators closed SVB on Friday.
The banking collapse has rattled global markets. Even though fears of a contagion have reduced, concerns remain. The S&P 500 regional banks index (.SPLRCBNKS) has lost 26% over the past five sessions.
“I appreciate and understand the doomsday scenario but I also think getting the facts out is very important – that our clients are not reacting in the manner that the doomsday scenario would indicate,” Bettinger said.
Richard Repetto, a managing director at Piper Sandler, said that, in contrast to many regional banks that have been put under pressure in the last week, Schwab had higher unrealized securities portfolio losses relative to its capital levels.
Buy Crypto Now“That said, due to robust supplemental liquidity sources, we think it is very unlikely that SCHW (Schwab) will ever need to sell HTM securities to meet deposit withdrawal requests,” with $150 billion to $200 billion of available liquidity, he said in a note to clients on Monday.
Downward pressure on Schwab’s stock reduced after Bettinger told CNBC earlier on Tuesday that he had purchased 50,000 Schwab shares, while billionaire investor Ron Baron said he had “modestly increased” his position in Schwab.
Around 82% of deposits held by Schwab were insured, falling under the Federal Deposit Insurance Corporation’s limit of $250,000. The bank said on Monday it had “access to significant liquidity”, including an estimated $100 billion of cash flow from cash on hand, new assets, as well as portfolio-related cash flows.
