Schwab bank - large paper losses

Rather, as the crisis drags on, investors are starting to unearth risks that have been hiding in plain sight. Unrealized losses on the firm’s balance sheet, loaded with long-dated bonds, ballooned to more than $29 billion last year.

At the same time, higher interest rates are encouraging customers to move their cash out of certain accounts that underpin Schwab’s business and bolster its bottom line.

We have our deposits covered 100% but:

the firm could borrow from the Federal Home Loan Bank and issue certificates of deposit to address any funding shortfall.

To save the banks The Fed. will need to lower rates and trash the currency, or print more money to bail out the banks and then trash the currency. :slightly_smiling_face:


Shares of Charles Schwab (ticker: SCHW) have tumbled about 35% so far this year as investors reassess the impact of rising interest rates and scrutinize the company’s balance sheet. Schwab has large unrealized losses on mortgage-backed securities, which it relabeled last year as “held-to-maturity” on its balance sheet, meaning the company does not intend to sell them prior to maturity.

my comment in other words this has been handled correctly all along.

This is not a crisis.

Your idea that the dollar will tank is not on. I am not talking the movements in the Forex. I am talking the internal appreciation of the dollar. The rate hikes will continue in all likelihood. There wont be much lowering of rates later on. Rates are normalizing. I see the long end of the curve being allowed to substantially rise by the FED.

But I am trying to think about to 1979 when I was young and the curve got inverted. Somehow the rules of the game have changed with supply side econ and I am stuck not knowing how rates behaved with demand side econ. Maybe the same, maybe not.

Was not the “trashed currency” scenario avoided on the last go around, by the Fed promptly Hoovering up the money it showered the banks with, so it never got out into the real economy and into the hands of consumers?



Just as well other CBs joined in the trashing so things could be kept a little opaque.


Last year, more than half of Schwab’s $20.8 billion in revenue came from net interest revenue, or the difference between the interest it earns on bonds and loans and the interest it pays on cash, primarily in its sweep accounts, which now yield just 0.45%.

…Schwab had $367 billion in deposits at the end of the fourth quarter, down 17% from a year earlier and down 7% from the third quarter.

If more clients move their cash out of sweep accounts paying 0.45% into Schwab money market funds, such as SWVXX, which pay 4.4-4.6%, holding onto long-term government-backed mortgage securities will not “break the bank”, but will certainly reduce earnings

1 Like

Before we get our panties in a wad, it’s important to understand a few details about Charles Schwab. One of the most important things is that Schwab has many parts.

At the top is Charles Schwab Corporation, which is the publicly traded holding company. Among the important subsidiaries are:

  1. Charles Schwab & Co, Inc - a broker dealer
  2. TD Ameritrade Inc - a recently acquired (and soon to be merged) broker dealer
  3. TD Ameritrade Clearing Inc - the clearing house for TD Ameritrade, Inc.
  4. Charles Schwab Bank - the banking arm
  5. Charles Schwab Investment Management Inc - an investment advisor for the Schwab branded mutual funds and ETFs.

The “fun” part is that all of these bits and pieces have their own regulations and regulators, and individual pieces can fail without the whole failing.

Also fun is trying to get financial info for all of the bits and pieces. I’m pretty sure that each of the regulated pieces reports their separate financial info to their appropriate regulators as required. But I’m not quickly able to do is find those separate financials. The consolidated financials of the parent company are easy enough.

Looking at the consolidated top line, they had 12 billion in interest income and only 1.5 billion in interest expense for the year ended 12/31/2022. While pretty darn good, they had even fatter margins in the previous two years. They also had another 10 billion in other sources of income. And with 7.2 billion in net profit, there’s room for some serious further adverse moves in interest rates before they’d even begin to lose money.

One the Balance Sheet, they report 366 billion of bank deposits, offset by 173 billion of Held to Maturity Securities (the real source of trouble for banks today) and 148 billion of Available for Sale securities. Buried in the footnotes is FMV of the Held to Maturity securities: 159 billion. So there is some impairment there. But the securities all appear to be US Agency mortgage-backed securities (I’d guess FNMA and FHLMC for the most part). So they are both safe and could be used as collateral at face value for a loan from The Fed if needed.

So it appears that Charles Schwab is pretty safe as far as depositors and brokerage customers are concerned. But that doesn’t mean they’re going to be a good investment for shareholders, which is where the articles linked in this thread seem to be going.