Schwab...

Old_Joe

Like many others here we use Schwab as our primary financial house. We have no exposure to their banking arm other than a checking account, but I have no idea how or if a problem within the banking arm might possibly spread into the brokerage arm.

In addition to a couple of fund holdings and stock holdings the great majority of our other assets at Schwab are in bank CDs and short-term (2-year max) US Treasuries. No one bank carries anything close to the 250k FDIC limit, and none of the CDs are with the Schwab Bank, so that's about as safe as reasonably possible.

Assuming the worst possible situation... a failure of Schwab bank taking down the brokerage also, I'm wondering how and how long it might take for the mess to be reasonably brought under control. What entities, government and otherwise, would be involved in trying to take care of a situation like that? Who would be responsible for sorting out all of the ownership issues with respect to Schwab brokerage assets?

msf

Securities held in brokerage accounts are typically held in street name, meaning that the brokerages have legal title to the securities. You are still the "real" owner, and the securities are not accessible to the brokerage firm's creditors.

The street name system is designed to withstand even a brokerage firm meltdown. When a firm faces liquidation, regulators, including the SEC and FINRA, work to ensure that customers’ securities are transferred to another firm. Keeping investments in street names can actually make the process easier because all of the documentation will be in one centralized account.

https://www.finra.org/investors/insights/its-your-stock-just-not-your-name-explaining-street-names

larryB

Thanks for starting this thread. Does anyone else have concerns about Schwab’s prime money market fund SWVXX? While I am no expert presumably their government and treasury MM funds have a higher degree of safety. Unless the Republican Party defaults the government. Which is not unlikely.

yogibearbull

As I posted in the "SVB Thread", Schwab is the 8th largest US bank holding company. It is subjected to annual Fed stress-tests. Obviously, the brokerage side has SIPC (& additional) coverage, while the banking side has FDIC coverage.

As for the m-mkt funds, under the 2014/16 reforms, there are the safer government m-mkt funds (Schwab SNVXX, etc), the higher yielding prime-retail funds that can impose gates and/or redemption fees without advance notice (Schwab SWVXX, etc), and also the prime-institutional funds with floating NAVs. So, know what you own, for what purpose(s), and why you are getting 27 bps extra 7-day SEC yield for SWVXX.

larryB

Thanks Yogi

rforno

larryB said:

Thanks for starting this thread. Does anyone else have concerns about Schwab’s prime money market fund SWVXX? While I am no expert presumably their government and treasury MM funds have a higher degree of safety. Unless the Republican Party defaults the government. Which is not unlikely.

I just use t-bills instead for parked cash at Schwab and continually roll them until needed. Partly b/c they're 'direct' investments and not funds, but mostly b/c I resent Schwab forcing us to buy their expensive MMFs to get anything on cash there since they no longer do sweep accounts into anything meaningful.

Old_Joe

"I just use t-bills instead for parked cash at Schwab and continually roll them until needed."

Yes, same here.

Derf

@Old_Joe or @rforno Are these automatic rolls or do "you" roll them ?

MikeW

Thanks very much for starting the thread. I had the same exact concern as you and have had discussions over the weekend with 2 friends who work at a major money center bank and also for a large U.S. mutual fund. I was advised to put my funds into short term treasuries as @rforno and @Old_Joe are doing. For shorter term cash needs I was advised to put it into an FDIC insured bank deposit account. This should be insured up to 250K. I need to call Schwab tomorrow but I believe you can do this at Schwab. If you are concerned about your bank funds at Schwab (and I frankly don’t know if you should be) you could open an FDIC insured savings account. Goldman Sachs offers a high yield savings account that pays 3.75% and is FDIC insured. I am considering this option. Joe and RForno I am curious— are you keeping your bank funds at Schwab for covering short term needs?

MikeW

The Goldman account is called a Goldman Sachs Marcus High Yield Savings Account

msf

Goldman Sachs offers a high yield savings account that pays 3.75% and is FDIC insured. I am considering this option.

Marcus will give you and and existing customer who refers you an extra 1% for three months. See if someone will send you a referral code if you're planning to do open an account there.
https://www.marcus.com/us/en/savings/high-yield-savings/referral

Old_Joe

@Derf-"Roll 'em."

MikeW

@msf … oh wow! Thx for that valuable piece of advice

rforno

Derf said:

@Old_Joe or @rforno Are these automatic rolls or do "you" roll them ?

Depends. If you buy them at auction. Schwab will let you auto-roll them so it's a frictionless process. If not, you have to do it manually, because .... it's Schwab.

rforno

MikeW said:

For shorter term cash needs I was advised to put it into an FDIC insured bank deposit account. This should be insured up to 250K. I need to call Schwab tomorrow but I believe you can do this at Schwab. .... Joe and RForno I am curious— are you keeping your bank funds at Schwab for covering short term needs?

I keep maybe 10-15K in my credit union account at any one time for regular/routine expenses (and a cushion!) - which mostly is my paycheck and/or one-off payments/honoraria .....but anything above that, plus the rest of any idle cash goes into Schwab and t-bills. If I need to make a big purchase or payment I just sell the t-bills and ACH the proceeds back into my checking account.

Baseball_Fan

Team - I have to ask though, why did Schwab get hammered more so than most other financial instituitons last week?

I am more than nervous (although that is my nature...big propenent of Andy Grove Intel, only the paranoid survive)...what does the market know that we might not? Shoot first, ask questions later?

Schwab's capitalization ration was lower than both SVB and FRC...gives me pause..although SCHW likely has a more diverse deposit base...not sure, I just don't like to see the down 25% stock in a week...

Best,

Baseball Fan

Derf

No E-mail flyers from Schwab in the last 2 or 3 days. What's the old saying, "No news is good news."
Enjoy your Sunday, Derf

rforno

The only Schwab news I heard was a surprise HUGE block of shares being sold on Thursday making headlines ... not looked into it further, though.

Mark

From Bloomberg via Yahoo Finance: Schwab Has Worst Drop in Years After SVB, Block Trade

From Barron's via Yahoo Finance: Why Charles Schwab Is Taking a Beating Along With Bank Stocks

sma3

There was some speculation that the block of shares was the chunk that TD Ameritrade owned before the merger. But why sell Friday? All sorta other chatter about Schwab loosing money because people are fleeing their Bank Account for higher interest rates

But Morgan Stanley Analyst says none of this affects them long term, so BUY!

I doubt I will but the regional bank ETF might really pop when this is settled, but I would think and active fund is a better idea, like LB's suggestion HSFNX

Baseball_Fan

@sma3...buy SCHW...ya, crazy part of me was thinking about it...but kind of remember during 9/11 after market closed the clowns on CNBC were putting word out that shorting the market was "unpatriotic"....F me to tears.

Question: How many folks will be lined up tomorrow morning outside First Republic branches in LaLa land? Ole' Yeller better make an announcement tonight or this could get real ugly real quick...

MikeM

Guys, Credit Unions are insured, same as banks, just a different federal agency.

The credit union version of the Federal Deposit Insurance Corp. is the National Credit Union Administration, or NCUA. The FDIC and NCUA are alike in that they insure all deposit accounts up to $250,000, per person and per ownership category, at participating banks and credit unions.

Sven

Schwab is a public trade company with a financial arm that caused all this headache. What about Fidelity and Vanguard and they are not public traded firms? Will T. Rowe Price runs into similar issue as Schwab?

larryB

@Sven. “Schwab is a public trade company with a financial arm that caused all this headache.” Can you please explain what this means. Thanks

Sven

@larryB, I was referring to why Schwab stock price is being affected considerably on Friday? Wonder if that is related to the Schwab Bank itself but not relating to SVB.

hank

Schwab ran into problems in ‘08 with their “Yield Plus” ultra-short. Apparently they led investors to believe it was a safe, suitable substitute for a money market fund. It was down less than 4% when this article published in ‘08. But ISTM the fund ended up losing a lot more before it was all over.

@Sven - ISTM Fidelity is privately owned. TRP would be the last house I would expect would run into trouble. But, who knows?

larryB

@Hank. Yield plus was really awful and there was a class action settlement if my memory serves me right. My kid’s college fund got a pittance back.

Observant1

hank said:

Schwab ran into problems in ‘08 with their “Yield Plus” ultra-short. Apparently they led investors to believe it was a safe, suitable substitute for a money market fund. It was down less than 4% when this article published in ‘08. But ISTM the fund ended up losing a lot more before it was all over.
[snip]

"The Securities and Exchange Commission today charged Charles Schwab Investment Management (CSIM) and Charles Schwab & Co., Inc. (CS&Co.) with making misleading statements regarding the Schwab YieldPlus Fund and failing to establish, maintain and enforce policies and procedures to prevent the misuse of material, nonpublic information. The SEC also charged CSIM and Schwab Investments with deviating from the YieldPlus fund's concentration policy without obtaining the required shareholder approval."

"The SEC also filed a complaint in federal court against CSIM's former chief investment officer for fixed income Kimon Daifotis as well as Schwab official Randall Merk, who is an executive vice president at CS&Co. and was president of CSIM and a trustee of the YieldPlus and other Schwab funds. The SEC alleges that Daifotis and Merk committed fraud and other securities law violations in connection with the offer, sale and management of the YieldPlus Fund."

"The YieldPlus Fund is an ultra-short bond fund that, at its peak in 2007, had $13.5 billion in assets and more than 200,000 accounts, making it the largest ultra-short bond fund in the category. The fund suffered a significant decline during the credit crisis of 2007 and 2008. Its assets fell from $13.5 billion to $1.8 billion during an eight-month period due to redemptions and declining asset values."

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