Charles Schwab (SCHW) stock has gotten caught up in the Silicon Valley Bank demise. Although its shares closed up more than 9% in Tuesday trading, its shares have lost more than 24% in 2023.
Why would a company best known for providing brokerage services, financial products such as ETFs, and full-service financial planning, get swept up in this mess? Easy.
One of its five significant subsidiaries is Charles Schwab Bank, the company’s principal banking entity. Charles Schwab Bank provides checking and saving accounts, first mortgages, home equity lines of credit (HELOCs), and pledged asset lines of credit (PALs).
In 2022, Schwab generated $1.4 billion in bank deposit account fees, up from $1.3 billion in 2021 and $355 million in 2020. While it’s had impressive growth from this revenue stream, it only accounted for less than 7% of its $20.8 billion total revenue last year.
Further, its total bank deposits at the end of 2022 were $366.7 million, down from $443.8 million a year earlier. In addition, it held $160.2 million in available-for-sale (AFS) securities and $173.1 million in held-to-maturity (HTM) securities.
In its March 13 statement, the company reiterated, “More than 80% of our total bank deposits fall within the (Federal Deposit Insurance Corporation) insurance limits,” Reuters reported. That limit is $250,000 per owner, bank, and account category.
So, it will be fine.
Elon Musk might have joked about buying Silicon Valley Bank, but he’s already made one terrible investment in Twitter; I doubt he wants a second one. As for Schwab stock, I doubt he holds any, although you never know.
However, some influential people are buying SCHW. Consider doing the same.
The CEO Buys More
It’s always good to see your CEO buying company stock when investors bash it. On Tuesday, CEO Walt Bettinger admitted that he purchased 50,000 shares for his personal account, a sign he’s not worried about the situation and looking to profit from investor overreaction.
According to Bettinger, Schwab is averaging $2 billion daily in asset inflows in March. Year-to-date, its inflows are approximately $42 billion.
“What I’ve heard from the advisors that I spoke with yesterday is great confidence in our firm. ... They know how conservative we are. They know we don’t take risks,” Bettinger said while appearing on CNBC. “That’s why we don’t go out a long way in terms of duration, and that’s why we maintain access to liquidity in the way that we do.”
There’s almost no chance Bettinger doesn’t make money off his $3 million bet.
Investing Legend Ron Baron Goes Fishing
Charles Schwab stock lost almost 12% on Monday. That got Ron Baron, the legendary investor, and CEO of Baron Capital, buying SCHW. As of Dec. 31, Baron Capital held 7.8 million shares. The 79-year-old admitted that he “modestly increased” his position.
The Baron Funds website points out that Schwab is the 7th-largest holding of the Baron FinTech Fund (BFINX) -- it invests in financial services companies that use technology to run their businesses -- with a 3.7% weighting.
Ironically, Baron is a big believer in Tesla stock. In February, he said it could hit $1,500 a share by 2030. Currently trading at $183, that would be some haul for Baron and Elon Musk.
Baron’s best-performing fund through the end of December is his all-cap Baron Partners Fund (BPTRX). It’s got a 14.35% annualized total return since its inception in January 1992. Tesla’s the top holding with a whopping 35.7% of the fund’s net assets. Schwab is the 7th-largest at 4.6%.
There’s no disputing he likes those two companies.
Barchart’s Own Merlin Rothfeld Likes Schwab
The long-time trader and Barchart.com contributor discussed three financial stocks he was buying on Tuesday. One of them was Charles Schwab.
“The past 10 days have crushed the share price, which is down nearly 45% in the last 10 trading sessions. Unlike SIVB who only had 10% of accounts covered by the FDIC limits, Schwab has 80% protected by the FDIC,” Rothfeld wrote.
While concerned about the percentage of its assets in U.S. Treasuries, Rothfeld sold $50 March 7 puts, generating a 6.98% rate of return on his five-day investment. He'll be a wealthy man if he can repeat that 73 times over the next year.
My colleague at Barchart followed the Warren Buffett strategy of getting greedy when others are fearful. It always seems to succeed.
“At the end of the day, there is blood in the street, and this may present some great trading or investment opportunities,” Rothfeld said. “The above trades entail elevated risk due to the extreme volatility of current markets. For this reason, they represent a small amount of my total portfolio allocation.”
Wise words, indeed.
These three investors have chosen not to put Schwab in the same box as Silicon Valley Bank. I couldn’t agree more. As a result, Schwab remains an excellent buy for the long haul.
More Stock Market News from Barchart
- Stocks Rally as Bank Jitters Subside
- Western Alliance Bancorp is Up Big on Citadel Purchase of 5.4%
- The 3 Financial Stocks I’m Buying Now
- Investors Flock to Apple and Microsoft During Bank Stock Rout
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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