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Only a “regional bank” problem??? Here’s a case study of SVB problems inside a U.S. “TOP TEN” bank.

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For anyone who thinks “the way of SVB“…..

…..is but a “regional bank” issue:

Being a broker-dealer and asset management platform…..

Charles Schwab is not a “pure” bank….. 

But with its banking services side…..

…..which supports, and is inseparable from, the business…..

…..(however it’s organized, I don’t care)…..

…..it is effectively among the TEN (!!!) largest U.S. banks…..

…..by assets. 

Schwab has a SIMILAR problem to the defunct SVB. 

For reasons unknown to medical science…..

SVB bit the bullet…..

…..and disclosed a write-down in its bond portfolio…..

Causing a panic, a run on the bank.

On the other hand…..

Schwab just plays (legal) accounting tricks…..

…..to minimize its visible losses.

(And no doubt, it’s NOT the only one.)

Backing up a bit…..

Relative to its total assets…..

Schwab has NOT made a lot of loans.

(Schwab’s bank seems to exist to service the broker-dealer and asset management side, not sell you a mortgage.) 

Thus, it is MUCH more at risk…..

…..(than your “ideal” bank)…..

…..from price fluctuations…..

…..in its bond portfolio. 

This was PRECISELY the situation…..

…..with SVB.

(Also, Schwab has, proportionately, more invested in mortgage bonds, than SVB did. This is, now, no good. Mortgage bonds—especially in a rising-yields environment—are of higher average duration. Schwab responded by cutting its overall portfolio duration in 2022. “Hello” to all the “SVB should have had longer duration” dummies. No, you DON’T want long duration now. But, ultimately, the main problem is being “underweight” in loans, not the duration.)

Moving on…..

At year-end 2021…..

Schwab had 100 percent of its bond assets…..

…..classified as “available for trading.”

Meaning, that they were booked at “market” value.

By year-end 2022…..

…..over 50 percent of Schwab’s bond assets…..

…..were classified as “held to maturity.”

Meaning, they were booked at the purchase value.

In the last quarter of 2022 alone…..

Schwab appears to have RECLASSIFIED…..

…..roughly $77 billion of bonds…..

…..from “available for trading” to “held to maturity.”

Now, declining bond prices in 2022…..

Substantially (perhaps almost wholly) contributed…..

…..to a $21.5 billion fall…..

…..in the unrealized income component…..

…..(in this case, unrealized losses)…..

…..of Schwab’s equity, that year.

(Presently, for what’s essentially a “top ten” bank, Schwab has a VERY low equity-to-assets ratio, a.k.a. it is “undercapitalized”… and, the ratio is LOWER (!!!) even than SVB’s before the crash.)

HOWEVER…..

Once the assets are reclassified…..

All further “mark to market” losses… STOP.

That “red ink” STOPS…..

There’s no further attention to continued real losses…..

Because there ARE NO reported losses.

Now, if yields go sideways this year…..

There may be… no more losses.

But if “the Fed” keeps “hiking“…..

And Schwab (and whoever else has done the same)…..

…..is now a BLACK BOX, assets-wise…..

What does that do…..

…..to “confidence“?

Yes, that’s right…..

In this case…..

The U.S. banking sector is TOAST.

Now, did Schwab really go…..

…..from 0% “held to maturity”…..

…..to over 50% “held to maturity”…..

…..in one year…..

…..with the GENUINE intent…..

…..(as represented to its auditor)…..

…..of holding those assets to maturity?

Or did they mislead the market…..

…..(certainly, some kind of violation)…..

…..by simply looking to freeze…..

…..their realized/reported losses…..

…..until the trading climate is more favorable?

Well, I don’t know for sure…..

But Schwab’s stock price has taken a beating.

Which means…..

SOMEONE is concerned.

HOWEVER….

You obviously don’t hear…..

…..about the problems covered here…..

On the TV or radio.

The problem is NOT just some regional banks.

The problem could be ANYWHERE.

The problem is the Fed.

The problem is everything.

The problem is that, we now have a situation…..

In which the problem is no longer, about handing out crummy loans…..

But about not having loaned enough…..

And instead…..

Having bought too many quality bonds.

Crazy!

What about the insurance companies?

They are filled to the gills with bonds!

Anyhow…..

If I have time…..

I will review other “top ten” banks in more detail…..

And let you know what else I find.

(Please note, I’m NOT telling anyone to get their money out of anywhere.  As I indicated in my last piece, in my opinion, the way things are going, that’s just not a concern anymore, because I think “they” will freeze or guarantee everything, one way or another. Also, I’m NOT a professional financial analyst, I’m just a blogger. I’m not shorting Schwab, and neither should you. Yes, the trend is down, but if you can’t handle volatility, don’t play. I don’t short individual company stocks, I go for inverse ETF’s.)

If you enjoyed this material…..

Please give me some money.

Or at least…..

Follow and like all my Twittering.

“Disclaimer”

Folks, my blogging platform and/or mass mailing plugin…..

…..went haywire…..

…..and sent my last two posts…..

…..to many who had unsubscribed.

(Why was it even retaining those email addresses??? No idea.)

Thanks 100% to Manny, the man, the legend…..

I think this is under control now.

I take unsubscribing seriously.

I had, and have, NO INTENT to spam people.

In the UNLIKELY event…..

…..that you are STILL, today, on my mailing list…..

…..after having unsubscribed…..

Please unsubscribe again…..

…..(the weblink to do so, is in every email)…..

And hopefully, this won’t ever happen again.

Lieutenant Calley

Folks, I’m sorry, I was wrong.

I wrote that Lieutenant Calley…..

…..spent about six years in jail…..

…..for ordering his army company…..

…..to exterminate My Lai village.

(Body count, close to 500, including close to 200 under-18’s.)

I thought it was about six years…..

…..as his on-and-off legal process…..

…..lasted a total of about seven years.

And I assumed he was in jail, for most of that time.

IN FACT…..

Calley spent some months…..

…..(perhaps a year)…..

…..in jail, pending his trial…..

Before becoming such a celebrity and folk hero…..

…..(Among other things… “The Battle Hymn of Lt. Calley”, a “spoken word” record featuring a fictitious account of Calley’s unit being attacked from My Lai, sold 2.3 million copies)…..

…..that Nixon let him out…..

……and put him on “house arrest.“

Calley then spent a total of three years…..

…..on house arrest.

I can’t ascertain that he ever went back to jail.

Not even for one day.

If someone knows better…..

Please leave a comment.

He was a free man, no more legal troubles, in 1976…..

About seven years…..

…..after first being investigated…..

…..for ordering the massacre.

In fairness to the army lawyers…..

As far as I can tell…..

They TRIED to put him away, for a long time.

But resistance from others in the Army…..

…..and virulent public support…..

…..among the “patriot” crowd at the time…..

…..(which likely had some influence, on some witnesses)…..

…..made that a tall order.

If you have anything to add or correct…..

Please leave a comment.

It’s an interesting story, I’d love to know more.

Permanent Feature

I will repeat this in every post…..

…..(except “headline only“, quickie posts)…..

…..until it’s no longer relevant…..

…..and/or we’re no longer here.

Assuming we make it to 2024…..

…..and have an election…..

The wonderful governor of Florida…..

Ron DeSantis…..

If elected President of the USA…..

Won’t do much of shit…..

…..other than get us into a war…..

…..with our supplier of everything.

That is, China.

Because that’s the track we’re on.

Trump tried to take the rivalry in an exclusively economic direction…..

But he was removed.

And now… THE CAKE IS BAKED.

Yes, I’m waiting for another pann-de-mmick…..

But the only strictly “political” issue now that matters…..

…..is how hard the U.S. will fight…..

…..and risk everything…..

…..(including, me and my family)…..

….to hold on to its Hegemony.

And… the “public” has no say in that.

Will NEVER have a say.

I can’t remember the last time the “public” had a say…..

…..on anything that really mattered.

Because we don’t fucking matter.

Anyone who plans to keep voting…..

…..(above the local/state level)…..

…..and legitimize U.S. Federal politics…..

…..and the destruction of their own country…..

…..and perhaps the world…..

…..is a “battered wife“…..

…..or just a FUCKING IDIOT.

(However, even if you’re an idiot, you should still give me money, for all the work I put into this blog. Or, at least, follow me on Twitter, and be sure to “like” everything, even the old stuff.)

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