While many smaller banks are currently shaking in fear over the notion of deposit flights, one bank stock doesn’t expect a problem. More specifically, it’s Charles Schwab (NYSE:SCHW), who revealed in a Wall Street Journal interview that even large-scale deposit outflows don’t have the brokerage unnerved. Oddly, that’s not news that investors are taking well, as they’ve sent Schwab down in Thursday afternoon trading.
Schwab, via co-chairman and CEO Walt Bettinger, is a “safe port in a storm,” thanks to the combination of a “conservative balance sheet” and a “strong liquidity position.” Bettinger even noted that “…there would be a sufficient amount of liquidity right there to cover if 100% of our bank’s deposits ran off.” There’s even a plan in place to respond to such conditions: Schwab would collect interest on its bonds, issue its own Certificates of Deposit to generate a hefty $8 billion per month, and even turn to the Federal Home Loan Bank for a little over $300 billion in loans.
This is a point that’s secured by other data, too; about a week ago, several insiders picked up an extra $4.5 million in Schwab stock. In addition, Schwab saw an explosion of incoming assets at about the same time as the insiders bought in. Yet here, some believe that Schwab’s downfall may be coming soon after all. Seawolf Capital portfolio manager Porter Collins noted that Schwab “mismanaged the balance sheet,” having “…made a big rate bet” that’s ultimately “…gone the wrong way on them.”
Other analysts, however, don’t seem to share that sour assessment. Schwab stock is currently rated a Moderate Buy by analyst consensus. Furthermore, with an average price target of $83.87, SCHW comes with 56.77% upside potential.
