Schwab leaders say firm can weather storm after deposit drop

CHARLES Schwab executives said the firm can withstand the turmoil roiling US banks, while pausing stock buybacks in response to the industry’s worst crisis since 2008.

Though Schwab is grappling with longer-term stresses, the first-quarter results it posted on Monday (Apr 17) showed that the company kept the trust of customers, who continued to add to its investment products. Profit climbed 12 per cent from a year earlier, beating Wall Street estimates.

Schwab cited “regulatory uncertainty” for its decision to pause stock buybacks following the collapse last month of three US lenders, including Silicon Valley Bank.

“What’s consistent to me is that long-term success comes from maintaining a focus on clients,” chief executive officer Walt Bettinger said in a conference call with analysts. “As storms come, storms also go.”

Shares of Schwab rose 3.9 per cent to close at US$52.77, paring their decline this year to 37 per cent. The stock has been battered as investors focus on long-term debt held by banks.

Schwab’s customer deposits slid 11 per cent since year-end to US$325.7 billion as of Mar 31. They’re down 30 per cent from a year earlier, a drop that roughly matched Wall Street estimates.

In a sign of strength, customers continued to add money to Schwab’s investment offerings. Core net new assets totalled US$132 billion, including more than US$53 billion in March alone, the second-most ever for that month.

The Federal Reserve’s rapid interest rate hikes buffeted Schwab’s business in recent quarters. Deposits, which underpin revenue, declined as customers moved away from lower-interest accounts and looked for investments that provide better returns for their excess cash. That trend is beginning to moderate, executives said on Monday.

Investors scrutinise Schwab deposits because if they decline too much, the concern is that the firm eventually could be forced to sell securities at a loss — though its senior leaders say there’s a “near-zero” chance of that happening.

SEE ALSO

Schwab reveals US$53 billion in new client assets in March, seeking to calm investors

Schwab errs with US$1.2m account transfer, customer buys house with 'windfall'

Schwab sues former client after US$1.2m accidental transfer

Chief financial officer Peter Crawford forecast that deposits could start growing again later this year.

Schwab also bolstered its balance sheet in the first quarter with US$45.6 billion from the Federal Home Loan Bank (FHLB) system — up from US$12.4 billion at year-end. Such debt is sometimes viewed as a sign of financial stress.

“These are limited and they’re temporary,” Crawford said of the FHLB loans during the call with analysts. “This is not something that is going to be part of our long-term financial picture.”

Adjusted net income rose to US$1.8 billion, or 93 US cents a share, 3 US cents better than the average estimate of analysts in a Bloomberg survey. Revenue was US$5.1 billion, just shy of Wall Street’s US$5.2 billion estimate. BLOOMBERG