When Silvergate Capital (SI) wound down, then Signature Bank (SBNY) and Silicon Valley Bank shut down, Charles Schwab (SCHW) fell with them. The influx of around $16.5 billion in core new assets for the week between March 10 to March 16 failed to lift SCHW stock.
Why are investors selling this discount brokerage?
Markets are speculating that Schwab does not have enough liquidity to meet withdrawal requests. Markets are wrong. Schwab has plenty of debt assets at short-term maturities. In addition, last week’s capital inflow is increasing its assets on hand. Whilst competitors and banks are losing deposits, Schwab is gaining them.
In January, Schwab brought in $36.1 billion in assets. Markets have no justification to dump the stock. Speculators might bet that the 16x price-to-earnings ratio is relatively too high. By comparison, B of A (BAC) trades at an 8.7x P/E. But capital markets firm Morgan Stanley (MS) has a 13.7x P/E.
Schwab has a large market capitalization of around $120 billion. A younger firm like Robinhood (HOOD) trades at a sub-$9 billion market cap. Interactive Brokers (IBKR) has a $34 billion market size.
Investors may bet that the sell-off in all three discount stock trading sites has good growth prospects. They will all need sustained trading activity in these turbulent market conditions.
