Deutsche Bank says Charles Schwab liquidity risks are overblown, sticks with buy rating

Published Tue, Mar 14 20237:25 AM EDT

The liquidity risk fears around Charles Schwab are overblown, according to Deutsche Bank. Analyst Brian Bedell reiterated his buy rating on Charles Schwab shares, noting: "Throughout this banking crisis that began Thursday, we believe SCHW did not have credible risk of a rapid and substantial client drawdown of deposits that would create significant pressures on its liquidity." Charles Schwab shares were hard-hit by the selloff of financial firms' stocks following the SVB failure. Investors feared that Charles Schwab and other firms with massive bond holdings of longer maturities would need to sell such holdings early at large losses in order to cover deposit withdrawals, similar to Silicon Valley Bank. Bedell noted that over 80% of Charles Schwab's deposit base is FDIC insured, as well as being diversified and core to its users, adding that "client cash sorting to higher yields is a gradual process that is in its later stages at the company." "In addition, SCHW mgmt. has discussed over the past two quarters its access to substantial amounts of liquidity, which we concur," the analyst said. "This position improved even further with the announced Bank Term Funding Program on Sunday, and SCHW's CFO cited over $300bn of incremental liquidity capacity (over and above internally generated cash & retail CD issuance), which we think should quell fears of any liquidity problems for SCHW." Atlantic Equities analyst Josh Heagerty reiterated the minimal liquidity risk for Charles Schwab and the likely downward target to earnings. "Uninsured deposits are only $69bn and with the Fed launching the Bank Term Funding Program we see minimal liquidity risk," Heagerty wrote in a Tuesday note. Heagerty added that, "In the medium- to longer-term, it seems likely that banks will need to pay more for deposits and may well need to hold more short-dated securities, lowering asset yields." The analyst maintained his overweight rating and lowered his price target to $100. To be sure, Deutsche's Bedell cut his price target on Schwab to $83 from $109. While the new target still implies 60% upside from the stock's Monday close price, the analyst said "the new environment that has unfolded since the bank failures over the weekend will likely place higher constraints on liquidity. Charles Schwab shares were up 9.2% before the bell on Tuesday, after falling 11.5% during the previous trading session. Shares are down 37.6% in 2023. SCHW 5D mountain Charles Schwab shares plunged following the failure of SVB —CNBC's Michael Bloom contributed to this report.