Shares of Charles Schwab (NASDAQ:SCHW) stock fell more than 11% on March 10, and another 9% over the weekend, on fears arising from the Silicon Valley Bank (NASDAQ:SIVB) collapse.
In addition to running a retail brokerage, Schwab also owns a bank holding company. Half its revenue in the last quarter came from net interest revenue, the difference between what it collects on bonds and what it pays demand depositors. Over the last week of trading, Schwab shares are down 23%.
Who’s Betting on SCHW Stock?
Over 2,000 institutions own shares of Schwab, carrying 94.6% of the stock’s float. The biggest holder is Toronto Dominion Bank (NYSE:TD), which owns 12.6% of the common and sold its Ameritrade stock brokerage to Schwab in 2019. Vanguard Group owns 7% and Blackrock (NYSE:BLK) owns almost 6%. Wellington Management Group and Dodge & Cox round out the top five shareholders. Between them, they own over one-third of the company.
Schwab brought in over $10 billion in net interest revenue last year, according to the company’s most recent quarterly earnings report. That revenue may be at risk as interest rates rise.
A statement from Schwab on its monthly activity for February updated the quarterly results. It shows bank client sweep outflows down 5% from January. The company said this represented clients’ decisions to move money within Schwab into higher-yielding cash investments. Analysts at JPMorgan Chase (NYSE:JPM) call this “cash sorting.” Schwab still expects revenue to be up 10% for the quarter over last year.
What Happens Next?
Morningstar issued a statement saying Schwab should have enough equity and liquidity to ride out the storm. Citi upgraded Schwab stock, saying the selloff offers a promising entry point.
If there were a nationwide run on bank deposits, Schwab would not be spared. But depositors can still use Schwab to move money into bonds or other instruments. So the damage could be minimal and the stock a bargain. Personally, I’m not worried.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
