Credit Default Swaps on Charles Schwab!

Submitted by OptionsKing--CFTC t3_1253buq in wallstreetbets

Charles Schwab CDS

vs

JPM CDS

You can even seen the price go up well before SVB (banking crisis as a whole) went under. If I had to take a guess, the company owns a ton of US treasury bonds that are all low rates from 2020/2021 (or before) and fed rates going up have started to burn up those investments which means a potential liquidity crisis for them as rates climb. So for their sake, they need rates to stop at the fed's target rates otherwise it could be GG for them if the fed doesn't stop at it's target rate.

If it means anything, many other US banks are seeing the same thing.

So take what you will from that.

112

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VisualMod t1_je27nmh wrote

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VisualMod t1_je27o8s wrote

>I'm not sure what you're trying to say. Are you saying that the price of SVB stock is going up because they own a lot of US treasury bonds? If so, I don't see how that would be relevant since the price of those bonds would go down if interest rates rise.

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Donotprodme t1_je2c7i3 wrote

As someone who has basically all my money in schwab, schwab can't possibly be in trouble.... imgimgimg

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Sudden-Ad-1217 t1_je2jr1i wrote

Holy shit! Are they that fucking regarded? Time will tell!

0

Malar514 t1_je2jwe1 wrote

Say « SWAPS SCHWAB » 10 times looking at you in the mirror and you become Jason Maraz

3

SuddenOutset t1_je2pw3w wrote

Replying to Donotprodme (#2,429,898)

It’s not. It’s fine.

AOCI is accumulated other comprehensive income. It’s where mark to market losses go. The bonds they hold to earn revenue from are low yielding so when you adjust their value to market, it’s less.

If they classify them as they’ll hold them to maturity then no loss reporting required.

Quite a dumb differentiation that has to be reported and for some reason people think is an important piece of information.

Schwab isn’t over leveraged, doesn’t have any connected big groups like Silicon Valley did, and only earns half its revenue (not income) from traditional bank activities.

At worst, if people did move their investment accounts out of Schwab en masse, then Schwab would just make less money.

Investment accounts aren’t handled like banking with fractional reserves. So any bank run won’t lead to the bank failing. For deposit side, with fed liquidity door open there is no issue in providing people their money.

Risk of failure is zero.

Risk of lower profits is existent.

34

Donotprodme t1_je2q2lp wrote

Replying to OptionsKing--CFTC (#2,432,097)

Aggressive....

actually the sweep on my account is into mm yielding 4.5%. This and other schwab funds would likely have problems in the event of inadequate liquidity. But no, my money is not in Schwab savings or checking...

7

SuddenOutset t1_je2q4yc wrote

Rates went up fast. The damage is done. Rates maybe up another .50. Not a big deal. What’s done is done.

Risk of failure is zero.

At worst, lower profits, that’s all.

Schwab performed among the top for stress testing.

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TheOtherAbbas t1_je2q53g wrote

Can we start calling them “Credit Default Schwabs” instead ?

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McSnoots t1_je2zai0 wrote

I heard they changed the UI of their trading platform and its fucking miserable yo use now.

−3

OverlyAverageJoe t1_je301dy wrote

Replying to Donotprodme (#2,429,898)

I was swapped to schwab by usaa after they shuttered their investment banking segment. Fairly sure the government will step in and keep schwab going, considering how many past military families got forced to use them.

10

B3stAuD1t0rofA11tiME t1_je34c0j wrote

Another new account. You just keep going man. I’ll print this off and sign my autograph and send your way. What else do you want me to sign?

28

superhead50 t1_je360wn wrote

Their average maturity is 3 years, the most they have lost on average is 10%

4

Rich-Algae7496 t1_je3ddsb wrote

This guy has had an account for a week. Guess he bought options

25

redHg81 t1_je3etmx wrote

Replying to Donotprodme (#2,436,168)

I agree that is perhaps one of the dumbest things I’ve heard in a while. <1% of the population knows someone who served in the military = zero political pressure to not completely screw these unfortunate souls (myself included). Schwab would simply make less money if all deposits were withdrawn.

1

LubbockGuy95 t1_je3g7r8 wrote

Inb4 they spin of their banking segment and it implodes

0

optiontraderkyle t1_je3n65b wrote

it’s the accounting rules that they have to recognise a loss for hold-to-mature treasuries.

If the bank does not sell its HTM treasuries and holds them until maturity, then the accounting principles for HTM securities generally do not cause any trouble for the bank. The bank will continue to earn interest on the securities and will record the interest income on its income statement.

However, since interest rates rise, the value of the HTM securities may decline in the market, but the bank will not have to record this decline in value on its balance sheet as long as it continues to hold the securities until maturity. This is because, under HTM accounting, the securities are not marked-to-market and are instead recorded at their amortized cost.

3

MChenSG t1_je3vp04 wrote

so what you are saying is… they will lost 100% of their depositors, all brokerage customer will leave and loans get defaulted on. under those condition they wont be able to operate and therefore is a bad company? I am sorry but its like saying if tomorrow onwards no one buys anymore apple product appl will eventually go under…

1

CapnEmaw t1_je4l0d1 wrote

You can see what investments a bank is holding and how much their unrealized losses are. Banks file quarterly financial statements called “call reports” which are public information. Do a search for call report, then find the investment information in schedule rc-b.

2

asianrockstar2009 t1_je4mh89 wrote

A credit default swap is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default or other credit event. That is, the seller of the CDS insures the buyer against some reference asset defaulting.

This shows that Schwab is actually a well managed company and the ceo actually has a brain and can see there's a possibility of a credit default so he's essentially hedging beforehand to profit from the collapse.

But Schwab, like many other banks, has been losing deposits as rates have risen with people moving their cash to higher yielding accounts. Schwab had $366 billion in deposits at the end of 2022, down 17% from the end of 2021.

So Schwab holds $83.18B in cash and $37.88B Debt. So in the case of a bank run where will have to cover $366B deposits which they don't have. Schwab has $8.25B in HTM (Held to maturity) securities that are deep in the red that they can borrow off of.

Banks can borrow against their bonds since fed is backstopping everything so they will have a extra $8.25B + $83.18B cash so a total of $91.43B for withdraws. So they can cover 25% of their total deposits in the case of a bank run.

The required reserve ratio for banks is 0%. On March 15, 2020, the Federal Reserve set the reserve requirements for banks to zero. As of February 2, 2023, the reserve requirement for banks is still zero. As such, there is no requirement that banks have to keep any portion of customer deposits on hand.

4

ccarb21 t1_je5s38a wrote

Looking at its balance sheet…best of luck to y’all

1