Charles Schwab's drop in margin balances fans SVB contagion jitters

Charles Schwab on Monday reported a 28% decline in average margin balances and a 4% fall in total client assets for February, piling more pressure on the company amid fears over the fallout from Silicon Valley Bank's collapse.

Its shares tumbled as much as 18% before paring losses to trade about 8.8% down at $53.6 after the company sought to allay investor worries over its liquidity levels and deposits.

"More than 80% of our total bank deposits fall within the (Federal Deposit Insurance Corporation) insurance limits," the company said in a statement.


Charles Schwab said it has "access to significant liquidity" including an estimated $100 billion of cash flow from cash on hand, portfolio-related cash flows, and net new assets that the company expects to realize over the next 12 months.

"While we believe Charles Schwab's liquidity and capital are fine, funding costs are moving up and that will pressure revenue growth and operating margin expansion," Morningstar said in a note on Monday.

The company's average margin balances fell to $60.6 billion last month, while total client assets slipped to $7.38 trillion.

Earlier in the day, Citigroup analysts said they do not see a material risk to deposits leaving Charles Schwab given its composition but remain concerned about whether there is sufficient liquidity on hand as client assets shift off balance sheet to other instruments.

The brokerage upgraded the company to "buy" from "neutral", but cut the price target to $75 from $83.

Charles Schwab's efforts to reassure investors came as the implosion of SVB Financial Group stoked contagion fears. A failed share sale at the tech lender had drained $42 billion in deposits in a single day and wiped out liquidity.

U.S. lenders First Republic Bank and Western Alliance also sought to calm investor worries over their liquidity and deposits on Friday.