Charles Schwab Corp Faces Challenges as Shares Plummet 33% in March

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Charles Schwab Corp, a major brokerage firm, experienced its worst month in over 35 years with shares plunging 33% in March, wiping out $47 billion in market value. Analysts are debating whether the firm has been unfairly punished by investors due to growing fears about the US banking sector. Founder of 50 Park Investments, Adam Sarhan, believes that the current situation is a “historic buying opportunity” for the financials sector as a whole, and not seen since 2008.

Schwab is facing challenges from two fronts. Firstly, its banking arm, one of the largest in the US, is dealing with some of the same issues that plagued the now-defunct Silicon Valley Bank. Secondly, like many of its peers, Schwab invested in long-dated bonds during a period of historically low interest rates, and is now stuck with losses on those investments as the Federal Reserve has increased interest rates over the last year.

The higher rates have created another headache for Schwab, as customers seeking better returns are moving their cash deposits into higher yielding assets like money-market funds within the brokerage or elsewhere. This process, known as cash sorting, has put pressure on the company’s profit outlook.

The pace at which customers are shifting their cash at Schwab spurred Morgan Stanley analyst Michael Cyprys to cut his rating on the stock for the first time since he began covering the brokerage company in 2016. Bank of America’s Craig Siegenthaler, who downgraded Schwab in January, remains the only analyst with a sell-equivalent rating on the stock.

Schwab is set to report its first-quarter results before the open of trading on April 17. Its shares have fallen at least 1.5% during each of its last five sessions following its earnings release.

Despite the current situation, Sarhan believes that buying opportunities like this are clear in hindsight. However, “having the courage in real time is very difficult,” he said. Other brokerage stocks were also lower, though not as much as Schwab. Interactive Brokers Group Inc. for instance, fell about 4% in March.

The Schwab situation highlights a broader issue in the market, where logic is sometimes thrown out the window, and emotion takes over. Analysts are keeping a close eye on the US banking sector, particularly as next week’s critical jobs report looms.

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  1. Maxwell Zeff. Schwab Eyes Worst Month Since 1987 as Cash Shifts to Money Funds. Bloomberg.com. https://www.bloomberg.com/news/articles/2023-03-31/charles-schwab-schw-eyes-worst-month-since-1987#xj4y7vzkg. Published March 31, 2023. Accessed April 1, 2023.
  2. Min S. Bank of America double downgrades Charles Schwab, says clients will continue to shift to money market funds. CNBC. Published January 19, 2023. Accessed April 1, 2023. https://www.cnbc.com/2023/01/19/bank-of-america-double-downgrades-charles-schwab.html