Morgan Stanley: Charles Schwab Vulnerable To Bank Run, Forced To Sell Securities At A Loss By Benzinga

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Morgan Stanley: Charles Schwab Vulnerable To Bank Run, Forced To Sell Securities At A Loss

Published Mar 30, 2023 17:31 Updated Mar 30, 2023 18:40

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Benzinga - Analysts at Morgan Stanley downgraded Charles Schwab Corp (NYSE: SCHW) on Tuesday, citing concerns over cash sorting and regulatory changes.

Schwab CEO Walt Bettinger recently said that the company's banking unit had enough liquidity to cover if 100% of its bank deposits ran off without having to sell a single security — Morgan Stanley says otherwise.

Schwab’s recent performance has not been up to Morgan Stanley's expectations, with customers moving cash out of sweep accounts into money market funds at a rate twice that which the bank had been modeling.

The SCHW Analyst: Michael Cyprys downgraded Charles Schwab from Overwight to Equal Weight, and lowered its price target from $99 to $68.

Check out more Schwab ratings here.

Cyprys told investors that Schwab’s earnings are under more pressure than initially anticipated, and the company is facing $22 billion in unrealized losses due to rising rates.

Despite Bettinger’s comments last week, Morgan Stanley believes the bank may have to sell securities at a loss to fund future withdrawals.

Further, Morgan Stanley cut EPS estimates by 30% for 2023 and 2024, reflecting the latest trends in customer cash sorting and uncertainty around the rates outlook.

Cyprys expects Schwab to successfully navigate through its near-term challenges given its access to funding and balance sheet liquidity, but a meaningful deceleration in cash sorting, followed by a reset of earnings expectations, are necessary preconditions for the market to buy into a recovery story.

Lack of visibility into the abatement of cash sorting and the amount of wholesale funding required in the interim creates significant uncertainty around Schwab’s earnings trajectory, Cyprus said, making the investment risk/reward less compelling.

SCHW Price Action: Shares of Charles Schwab are trading 5.25% lower to $52.32, according to data from Benzinga Pro.

Next: Biden Eyes New Regulations As Congress Dives Into Silicon Valley, Signature Bank Failures

Latest Ratings for SCHW

DateFirmActionFromTo

Feb 2022	Morgan Stanley	Maintains	Overweight
Jan 2022	Deutsche Bank	Maintains	Buy
Jan 2022	Argus Research	Maintains	Buy

View More Analyst Ratings for SCHW

View the Latest Analyst Ratings

Read the original article on Benzinga

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Morgan Stanley: Charles Schwab Vulnerable To Bank Run, Forced To Sell Securities At A Loss

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