Vince: Applauding your efforts to offer a well balanced / reasonably unbiased view on the situation from both bull/bear perspective, especially given you are long here.
After my tweet (quoted in this article), I added the following to offer some extra color.
"To be clear, I'm not saying $schw is a short, and am aware many smart investors (whom I respect) are long here. I just think CEO shall hold a high honesty bar, and be upfront with its issues."
Yea, you are one of the 'smart investors' I referred there :-)
"Investors and analysts in the space knew about the impact of unrealized losses on the earnings of regional banks, Schwab," - true to some extent, but I think the level of nuance was probed and understood far better in a short 1 week period than before, and I would argue its impact wasn't priced in judging its last 12 month price chart.
imo, that was a market inefficiency, people buy into mgt (not just schwab) narrative that these unrealized loss are just on paper, can be held to maturity, no material impact. However in this business where interest spread is crucial, these unrealized losses (esp 10Y+ bonds at 1.x% IR) are near permanent equity loss that shall be priced in.
right, the risk is that the market knew about the balance sheets, but didn't really *know* about the balance sheets. Think that's a reasonable explanation for the reaction beyond SCHW as well. I still think the P&L impact is what really matters, and that will mitigate over time (though, as you point out, a *long* time), and as long as EPS grows at all from here SCHW probably does well. Lot of pitfalls along the way - will be fascinating to watch certainly!
Between its net book value vs its total future cashflow, I agree the latter shall weight a lot more, and must admit $schw is a great franchise, that I would love to own, hopefully one day.
Vince: Applauding your efforts to offer a well balanced / reasonably unbiased view on the situation from both bull/bear perspective, especially given you are long here.
After my tweet (quoted in this article), I added the following to offer some extra color.
"To be clear, I'm not saying $schw is a short, and am aware many smart investors (whom I respect) are long here. I just think CEO shall hold a high honesty bar, and be upfront with its issues."
Yea, you are one of the 'smart investors' I referred there :-)
Cheers and best luck,
Siyu
On 'what has changed since this week':
"Investors and analysts in the space knew about the impact of unrealized losses on the earnings of regional banks, Schwab," - true to some extent, but I think the level of nuance was probed and understood far better in a short 1 week period than before, and I would argue its impact wasn't priced in judging its last 12 month price chart.
imo, that was a market inefficiency, people buy into mgt (not just schwab) narrative that these unrealized loss are just on paper, can be held to maturity, no material impact. However in this business where interest spread is crucial, these unrealized losses (esp 10Y+ bonds at 1.x% IR) are near permanent equity loss that shall be priced in.
right, the risk is that the market knew about the balance sheets, but didn't really *know* about the balance sheets. Think that's a reasonable explanation for the reaction beyond SCHW as well. I still think the P&L impact is what really matters, and that will mitigate over time (though, as you point out, a *long* time), and as long as EPS grows at all from here SCHW probably does well. Lot of pitfalls along the way - will be fascinating to watch certainly!
Between its net book value vs its total future cashflow, I agree the latter shall weight a lot more, and must admit $schw is a great franchise, that I would love to own, hopefully one day.