In a Thursday interview with CNBC’s Jim Cramer, Charles Schwab CEO Walt Bettinger pushed back against negative sentiment on Wall Street about his company, which saw shares plummet this week after certain metrics in its banking business fell short of expectations during the recent quarter.
Cramer asked Bettinger whether his company still had an issue with cash sorting, as was suggested by a Thursday story from Barron’s. Cash shorting, which occurs when depositors move funds form lower-paying accounts to high-yield ones, plagued Schwab last year, according to Barron’s. Those fears were stoked Tuesday when Schwab reported earnings, which showed that bank deposits had fallen and supplemental borrowing increased, Barron’s reported.
But Bettinger suggested that cash sorting is not a significant issue.
“In the second quarter, people may have been disappointed that we were a couple of billion dollars less than they anticipated. But you’re talking about a $9.4 trillion base, a record base in assets,” he said. “And June was a wonderful month to buy into the market, a lot of our clients did. So their cash went down a little bit more than anticipated because they bought stocks.”
According to Bettinger, there is “confusion” about when customers use Schwab as a fiduciary and when they use Schwab to make “self-directed” investments. As an investment advisor, Bettinger said Schwab ensures that their clients’ cash goes into a high-yielding money market fund. But when money management is “self-directed,” investments are “completely up to the client,” he said.
He also insisted that the company’s current situation is different from issues that came from last year’s mini banking crisis.
“The circumstance with our stock decline in the last few days has nothing to do whatsoever with the regional banking-related issues of a year plus ago,” he said. “We have put that in the rearview mirror.”
At Thursday’s close, Schwab shares were down more than 17% for the week so far.
CORRECTION: This story has been updated to reflect that Schwab faced issues with cash sorting, according to Barron’s.
Disclosure: Charles Schwab is a sponsor of “Mad Money.”
