Charles Schwab exceeds expectations while State Street tumbles

Charles Schwab (SCHW) on Monday said it lost $41 billion in deposits in the first three months of 2023, offering investors the first detailed look at how a firm at the center of last month’s banking crisis navigated the tumult.

That drop was slightly less than what analysts expected. The brokerage giant also said first-quarter profit of $1.6 billion and revenue of $5.1 billion were up from the first quarter of 2022 but down when compared to the fourth quarter. Its earnings were better than expected.

Shares of the brokerage giant have lost nearly 40% so far this year, including a more than 30% drop in March–the worst month ever in the company’s history. Shares are roughly flat in pre-market trading.

Schwab was not the only bank in focus Monday. State Street (STT) posted first-quarter income of $549 million that was down 9% from a year ago and 25% from the fourth quarter. Its earnings were worse than expected, and the stock was down more than 10% in pre-market trading.

The stock of a regional lender based in Buffalo, M&T (MTB), was also up more than 2% in pre-market reading after it announced that profits were up from the year-ago quarter, driven by a doubling of its net interest income.

The results are the latest in a closely-watched earnings season for the nation’s banks, coming roughly one month after the March failure of Silicon Valley Bank. Banks of all sizes will be scrambling over the coming weeks to show investors how they are better positioned than rivals to weather any future turmoil.

Four of the nation’s biggest banks on Friday said first quarter net income and revenue surged from a year ago, demonstrating the resiliency of the industry's giants. The nation's biggest bank, JPMorgan Chase (JPM) reported a profit of $12.6 billion that was up 52% from the first quarter of 2022. Wells Fargo (WFC) earned $5 billion, Citigroup earned (C) $4.6 billion, and PNC (PNC) earned $1.7 billion.

Bank of America (BAC) and Goldman Sachs (GS) report their first-quarter results tomorrow.

Investors punished Schwab following the March 10 failure of Silicon Valley Bank as they looked for other institutions that could face an outflow of depositors or had sizable paper losses on their debt securities due to rising interest rates.

Their concern was that Schwab’s bank clients might move their money from “sweep accounts” into higher-yielding alternatives, and that could force the company to sell some of its bonds at a loss.

Schwab ended the first quarter with $325 billion in deposits. That was down 11% from the fourth quarter and 30% from the year-ago quarter. But it was also roughly what analysts expected.

During the peak of the turmoil in March, Schwab felt compelled to come out publicly and reassure investors its liquidity remained strong. Its CEO told The Wall Street Journal the brokerage could continue to operate even if it lost most of its deposits over the next year “without having to sell a single security.”

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