Former equity analyst here, but I never covered the banking sector so treat this post like an amateur opinion. I use Schwab as a broker so I took a look at Schwab's financials this weekend.
First, Schwab has over $350 billion in deposits. That has declined from over $450 billion at it's peak last year. Unlike the regional banks, I'm guessing that this is less due to capital flight (moving from Schwab to another bank), and more due to customers moving their assets from cash (Schwab pays a pitiful 0.5%), and into higher-yielding assets (like treasuries or money market funds). The assets stay on Schwab, but it still decreases Schwab's deposits and liquidity.
Moreover, I was stunned when I saw that Schwab reported over $150 billion in held-to-maturity assets of over 5 year duration (and over $100 billion of that is in bonds of greater than 10 year duration). Again, not a banking analyst (also not sure if some of this is hedged), but this looks very aggressive to me, and could result in a significant $15+ billion loss that significantly impairs tangible book value. Regulators really dropped the ball by not incorporating more stress scenarios based on interest rates.
Schwab recently sent a notice that they have a large amount of liquidity, and it is unlikely that they'll need to sell the HTM maturities. Still, there is a concern that Schwab customers will panic and put that to the test. The falling stock price and posts like this will probably raise awareness of Schwab's issues.
Personally, I'm pretty disappointed in Schwab, but my opinion is that your brokerage assets are almost certainly safe. Schwab still has a decent cushion (including equity, preferred, and debt), and operates a pretty valuable franchise. Equity holders could be in trouble due to concerns over negative carry though (their long-term HTM assets could yield less than the cost to attract new deposits).
Personally, I turned off the margin at Schwab this weekend out of an abundance of caution, to reduce the likelihood that I'll be an unsecured creditor if shit truly hits the fan. However, that will almost certainly not be necessary.
> more due to customers moving their assets from cash (Schwab pays a pitiful 0.5%), and into higher-yielding assets (like treasuries or money market funds). The assets stay on Schwab, but it still decreases Schwab's deposits and liquidity.
Also decreases Schwab’s ability to earn profit. They used to be able to give you 0.5% and take it to the market for more. If that source of profit evaporates, that hits their corporate equity.
As long as they have enough equity to burn through, they’ll be okay for customers. Businesses become less profitable all the time, but remain going concerns. But if expenses exceed revenue for the foreseeable future…
You have the best post on this thread. One question, since you seem pretty knowledgable: I thought margin accounts were covered under SIPC? Can you send me a link on how with a margin account we are unsecured creditors? I found this one but it didn't really mention being unsecured:
https://www.sipc.org/for-investors/investor-faqs#how-are-mar...
Not an expert on SIPC either, but if you have less than $500k on your brokerage (including a max of $250k in cash), you should be fine either way (just like with FDIC insurance). The only possible exception is if you allow the broker to lend your shares, but even that may be covered, I don't know. If you have more though, the assets of an account with no margin are segregated, held 1-1, and are not allowed to be lent on, which simplifies the situation (barring criminal actions by Schwab, which are very unlikely). Not sure of the exact legal situation, but I remember that in 2008, this was considered relevant for funds that platformed with Bear Stearns, and caused funds to deleverage (ironically accelerating the situation)) in the weeks leading to its collapse/takeover.
Again, this is almost certainly not relevant, but it was a pretty simple action for me to do and quelled my paranoia.
First, Schwab has over $350 billion in deposits. That has declined from over $450 billion at it's peak last year. Unlike the regional banks, I'm guessing that this is less due to capital flight (moving from Schwab to another bank), and more due to customers moving their assets from cash (Schwab pays a pitiful 0.5%), and into higher-yielding assets (like treasuries or money market funds). The assets stay on Schwab, but it still decreases Schwab's deposits and liquidity.
Moreover, I was stunned when I saw that Schwab reported over $150 billion in held-to-maturity assets of over 5 year duration (and over $100 billion of that is in bonds of greater than 10 year duration). Again, not a banking analyst (also not sure if some of this is hedged), but this looks very aggressive to me, and could result in a significant $15+ billion loss that significantly impairs tangible book value. Regulators really dropped the ball by not incorporating more stress scenarios based on interest rates.
Schwab recently sent a notice that they have a large amount of liquidity, and it is unlikely that they'll need to sell the HTM maturities. Still, there is a concern that Schwab customers will panic and put that to the test. The falling stock price and posts like this will probably raise awareness of Schwab's issues.
Personally, I'm pretty disappointed in Schwab, but my opinion is that your brokerage assets are almost certainly safe. Schwab still has a decent cushion (including equity, preferred, and debt), and operates a pretty valuable franchise. Equity holders could be in trouble due to concerns over negative carry though (their long-term HTM assets could yield less than the cost to attract new deposits).
Personally, I turned off the margin at Schwab this weekend out of an abundance of caution, to reduce the likelihood that I'll be an unsecured creditor if shit truly hits the fan. However, that will almost certainly not be necessary.