Schwab Leaders Say Firm Can Withstand Storm After Deposit Drain

(Bloomberg) — Charles Schwab Corp. executives said the firm can weather the turmoil roiling US banks, while pausing stock buybacks in response to the industry’s worst crisis since 2008.

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Though Schwab is grappling with longer-term stresses, the first-quarter results it posted Monday showed that the company kept the trust of customers, who continued to add to its investment products. Profit climbed 12% from a year earlier, beating Wall Street estimates.

Schwab cited “regulatory uncertainty” for its decision to pause stock buybacks following the collapse last month of three US lenders, including Silicon Valley Bank.

“What’s consistent to me is that long-term success comes from maintaining a focus on clients,” Chief Executive Officer Walt Bettinger said in a conference call with analysts. “As storms come, storms also go.”

Shares of Schwab rose 2.8% to $52.18 at 11:46 a.m. in New York, paring their decline this year to 37%. The stock has been battered as investors focus on long-term debt held by banks.

Schwab’s customer deposits slid 11% since year-end to $325.7 billion as of March 31. They’re down 30% from a year earlier, a drop that roughly matched Wall Street estimates.

In a sign of strength, customers continued to add money to Schwab’s investment offerings. Core net new assets totaled $132 billion, including more than $53 billion in March alone, the second-most ever for that month.

The Federal Reserve’s rapid interest rate hikes buffeted Schwab’s business in recent quarters. Deposits, which underpin revenue, declined as customers moved away from lower-interest accounts and looked for investments that provide better returns for their excess cash. That trend is beginning to moderate, executives said Monday.

Investors scrutinize Schwab deposits because if they decline too much, the fear is that the firm eventually could be forced to sell securities at a loss — though its senior leaders say there’s a “near-zero” chance of that happening.

Chief Financial Officer Peter Crawford forecast that deposits could start growing again later this year.

Schwab also bolstered its balance sheet in the first quarter with $45.6 billion from the Federal Home Loan Bank system — up from $12.4 billion at year-end. Such debt is sometimes viewed as a sign of financial stress.

“These are limited and they’re temporary,” Crawford said of the FHLB loans during the call with analysts. “This is not something that is going to be part of our long-term financial picture.”

Adjusted net income rose to $1.8 billion, or 93 cents a share, 3 cents better than the average estimate of analysts in a Bloomberg survey. Revenue was $5.1 billion, just shy of Wall Street’s $5.2 billion estimate.