In addition, Morningstar reminded investors that Schwab's "low costs and large client base give it the flexibility to create products offering a value proposition." Therefore, we assessed Schwab must demonstrate that it can maintain its strong relationship with its customers. In a world of electronic communication and global supply chains and work-from-home and the gig economy, business relationships are less sticky. Relationship businesses in general are on the decline. In an interesting column last week, Bloomberg's Matt Levine highlighted why " nobody trusts the banks now." He reminded readers that the current banking crisis had unveiled a critical flaw that relied on the intangible assets of "relationships" to help mitigate the asset-liability mismatch risks that banks face. Moreover, Bettinger reminded investors, "Schwab's bank is unique as it serves as a bank for investors." Schwab's assurance of its operating model (including its decision not to de-bank) as CEO Walter Bettinger accentuated that "Schwab's franchise strength and financial model remain intact."Īs such, Bettinger doesn't see a need to reconfigure its "multi-decade approach to conservatively managing its bank balance sheet." As such, while Schwab sees a short-term impact on earnings due to the current dynamics, it should not have a long-term material impact on its business model. The Oracle of Omaha stressed that he doesn't " know where the shareholders of banks are heading." While he suggested he's not worried about his personal deposits above the $250K insured limit with his "local bank," he cautioned that "in terms of owning banks, events will determine their future." He reminded bank investors that "every event starts creating a different dynamic." Therefore, the company's timely update on Friday could have soothed some lingering fears about Schwab's ability to hold on to its deposits, critical to underpinning a recovery in 2024.Īs such, SCHW holders likely saw a dip-buying opportunity over the week, defending a critical support zone to prevent it from crashing toward its 2020 lows.īerkshire Hathaway ( BRK.A) ( BRK.B) CEO Warren Buffett sounded a word of caution for bank stock investors at the company's annual meeting yesterday (May 6). We reassessed the buying sentiments last week and believe that SCHW's March lows continue to hold remarkably well, despite the collapse in the regional banks.Īccordingly, the KRE and IAT have fallen to lows last seen in 2020, as the fallout threatened to engulf the entire sector. Schwab investors saw SCHW nearly crumbling to take out the lows it formed in March. We wouldn't know where the "cockroaches" are hiding until it's too late. We also reminded members of our service that it might be more prudent to consider a regional banks ETF ( IAT) ( KRE) as a bet on the sector recovery than individual banks. As such, it's incredibly challenging for investors to time an entry in banking stocks right now, particularly the regional banks. However, the massive short-covering on Friday (May 5) saw PACW and WAL recover more than 80% and nearly 50%, respectively. The crisis threatened to engulf PacWest Bancorp ( PACW) and Western Alliance Bancorporation ( WAL), as speculators assessed that both banks could be next to collapse. However, the recent events in the regional banking sector over the past week suggest that holders must be prepared for more volatility, as it came under attack from short-sellers and speculators. It also included the impact of " seasonal tax payments ," suggesting that Schwab could have performed better.Īs such, the wide moat integrated finance company has strengthened the thesis of its April update, increasing its confidence that the outflow could abate this year, leading to a " resumption in the growth of client cash on the balance sheet." The Charles Schwab Corporation ( NYSE: SCHW) has continued to engage its investors after its April earnings call, assuring them that " client outflows have decelerated for the third consecutive month."ĬFO Peter Crawford presented an update on May 5 that outflows slowed to $1B in April 2023, down from $1.19B in March. TrongNguyen/iStock Editorial via Getty Images
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