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Summary
- Banks are incredibly boring until they explode.
- SCHW is a bit more interesting despite not having a lot of incendiary devices.
- Earnings are already being pressured by “cash sorting” as depositors gradually realize they can earn a return on uninvested assets.
- SCHW will possibly experience inflows, not outflows, of deposits and, at worst, be stable and potentially gain from the current crisis.
- All of which makes me believe that the recent selloff is understandable but perhaps overdone.
Investment Thesis
Most large banks are riskier than they appear, despite regulators and politicians who promise to stabilize a system that crashes with the regularity of a Swiss watch. I generally steer clear of the sector.
Schwab (NYSE:SCHW) is indeed a large bank, but on a different mission and with other priorities. The assets on the balance sheet are boring, plain vanilla, which can be held to maturity. While there is pressure on current earnings from “cash sorting” depositors, this has been transparently acknowledged by management for months now. There is also evidence that Schwab and other large institutions are attracting new deposits from accounts fleeing smaller banks.
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