Regional Bank Stress & Schwab’s Record Quarter 10/17/25

0:00Bring in show music please. This is Squawk Pod and I'm CNBC producer Cameron Costa. On today's episode, zeroing in on the credit markets. We've made a lot of bottoms in October and please don't pick your bottom or don't pick a bottom. Worries over bad loans at mid-size U.S. banks are shaking up global stocks. CNBC's Leslie Picker reports. The markets are just overall on high alert about cracks in the credit markets. And how Charles Schwab is interpreting these concerns. The brokerage hit record revenue in the past quarter, and CEO Rick Worcester says he's not worried about credit, at least not yet.

0:43We're not seeing the indicators that would suggest this is a broad-braced credit issue yet. Plus, the Ray-Ban Meta partnership is paying off, and in Washington, Treasury Secretary Scott Besant is set to speak with his Chinese counterpart to talk trade. The question is, you know, whether that represents some kind of a breakthrough in this flare-up of tensions that we've seen over the past week, or at least maybe a platform where some kind of a breakthrough could happen. It's Friday, October 17th, and Squawk Pod begins right now. Stand Becky by in 3, 2, 1, cue it please. Good Friday morning, everybody.

1:23Welcome to Squawk Box right here on CNBC. We're live from the Nasdaq market site in Times Square. I'm Becky Quick along with Joe Kernan. Andrew is off today. Yesterday, 10 of 11 sectors were down, but the biggest decliner was the financial sector. Only sector that closed higher yesterday was technology. It was up by just over a tenth of a percent. But for the week, 10 of 11 sectors are higher. So again, a lot of back and flow, a lot of nervousness as you get into some of these numbers, particularly with what you're seeing from some of the banks. The question is, and these are regional banks we're talking about, these aren't things that are necessarily key to their missions or key to what they're doing.

2:01Canary. The question is, right, if they've been a little too loose with their lending standards. Canary in a coal mine. The VIX has doubled. Right. The highest level, I think, since April, maybe. We should look at the VIX. Yeah, we should take a look at that. It's doubled in the last three weeks. It's almost 30, and it was down at 15 prior to that. And then you've got this Treasury's yields falling. I think oil. Yeah, the 10-year below 4%, which Rick was talking about that yesterday. I think I was listening to him on the exchange with you. You were. Right, right at the exchange, right at the end of that show, beginning of the next, where he was talking about if you close at 4%, below 4 % today, that's something he would set up and notice as a former trader himself.

2:40Bitcoin was 125 like a week ago or something. Remember the big drop on Friday, 104. And it's volatile. And people sell. The reason it gets correlated is people sell what they have in times of stress. Because it's highly leveraged. It's highly leveraged. And if you got it, you need money for other things. For margin calls. Yeah. Or whether there's margin calls on it. I mean, 4 % again today. Shares of regional banks, we talked about right at the top, tumbled yesterday. Fears of exposure to bad loans. This all has to do with, if you watch the stock of Jeffries Company, which went down another 6%.

3:19Zions, Western Alliance were among the hardest hit. Zions and Western Alliance said yesterday that they were victims of fraud on loans to funds that invest in distressed commercial mortgages. The losses were relatively small, but the hit to sentiment led to selling on Wall Street. 74 of the biggest U.S. banks shedding, if you add it up, shed more than$100 billion in market value. But that's like, you know, if NVIDIA goes down a point, it's like the same thing. The S &P regional bank, not quite, regional bank ETF, the KRE fell by more than, maybe it's not an exaggeration, 6%. It's now down four straight weeks, and it's down six out of the last seven weeks of bankruptcies of two auto industry-related companies.

4:06this year have also raised concerns about loose lending practices, especially in the opaque private credit market, which people are paying more attention to suddenly. Alternative asset management companies like Blue Owl Capital, Aries, and Blackstone also fell in yesterday's session. And I don't know whether the government shutdown is really having any effect yet, but... Look, it's a little nerve-wracking. When you talk about TSA... with no way of getting out of this, and that the two sides in the Senate aren't talking, except for over the media airwaves. I mean, that's a little more concerning.

4:41I don't think that's what Biden is. I think Monday, it all changes on Monday. Schumer had to look tough, you know, for all of his guests coming into the city. For no King, you know, doesn't want to be on the spot on Saturday that he folded again. Although they are getting, John Thune put through another vote yesterday and he lost ground with it, with Angus King not voting on it. So if you're hoping that five, Democrats will peel off, you're going in the wrong direction. Well, they will eventually, but it's a 24-page continuing resolution to fund the government. It's got nothing to do with any of this other stuff.

5:11No. And look, they've said, I think the Trump administration has dug in at this point, that they are not going to negotiate until the government's back over. I wouldn't even open my... I'd say, you know, Chuck, you got this. But the questions are, the longer this goes on, the questions are, is this going to be material for the economy, for the broader economy? And those are the big issues. It's material for a lot of people that... Absolutely. Who aren't getting paychecks right now. Exactly. Right. Europe's largest banks are firmly in the red this morning. Across the board, you're seeing declines of three and a half to almost seven percent with some of those major banks.

5:43Despite today's declines, Europe's stock 600 bank index actually remains up more than 40 percent for the year to date. You know, that's something to think about. It is down. It looks terrible. Yeah. Up 40 percent year to date. Right. Our banks have been pretty good this year to date. Right. So we've got to keep, we've got to remember that. And look, even with the concerns that you're seeing, all three of the major averages are less than 2 % from all-time highs. So. You know what the date is, though? VIX is up. That's something to be concerned about. You know what the date is? Yes. It's October, late October.

6:16What is it? 17th. Every bottom we've ever made. It's my niece's birthday today. Happy birthday, Mark. It's my niece's birthday today. Happy birthday. But every bottom we've ever made, it seems like. That's exaggerating. But we've made a lot of bottoms in October. And please don't pick your bottoms or don't pick a bottom. The tech sector is also getting don't try to pick a bottom.

6:39Bank stocks in the United States and abroad are under pressure. Leslie Picker joins us right now to break down some of the catalysts for that. And Leslie, this has been a slow boil. But yesterday, we heard a lot more. Yeah, a slow boil indeed. Pretty much every company with a loan book was in the red on Thursday. Credit concerns very much front and center. Regional banks plummeting, alternative asset managers plummeting. Jeffries tanked once again as its name has become increasingly synonymous with the first brand's bankruptcy. Credit concerns at Zions and Western Alliance, really the catalyst that spooked the entire sector.

7:15Zions revealing in a filing that it is pursuing a lawsuit and taking a provision of$60 million due to what it describes as a, quote, apparent misrepresentations and contractual defaults related to a borrower. Western Alliance filed its own 8K as well, saying it doesn't need additional provisions related to its exposure to the borrower, which it had sued back in August, alleging fraud. The bank believes collateral coverage will cause it to avoid losses, but Western Alliance also had exposure to first brands. So lots of questions circling this space. Bank of America, another name to watch, as analysts point out, it too has exposure to that same borrower, although its exposure is minimal and senior in the capital structure.

8:02Even though exposure for each of Zion's Western Alliance and Bank of California stands at under 2 % relative to their respective tangible common equity, the markets are just overall on high alert about cracks in the credit markets following the bankruptcies of two auto companies last month that sent private credit stocks roiling. And now you're seeing that spillover effect also in regional bank stocks. Several other regional names, including Regions, Truist, Fifth Third, Comerica, have reported earnings this morning, though, with results viewed as largely positive, guys. Hey, Leslie, just to clarify, no problems with Bank of America.

8:40This is Bank of California that you're specifying. You saw the charts that were here, but you said American, just for anybody who was listening. Let's clarify that. Bank of California, go through that a little bit again for us. Correct. Bank of California, they have minimal exposure, but it's senior in the capital structure. So they're kind of part of that same borrower contingency, but nobody expects them to have any serious issues as it pertains to that. Not Bank of America. Bank of America did not have exposure to this one borrower that's going through litigation with three of those regional banks and likely some more.

9:17Okay. Leslie, thank you very much. I have the feeling we're going to be talking a lot more about this. Well, we'll talk about what we see, but we hope it doesn't boil into something bigger. But again, it is of interest and it is of notice. Yesterday, the financials were the worst performer, 10 of 11 of those sectors down, but the financials were the worst performer out of the whole bunch. And it was a bad day. Leslie, thank you very much. Cheese will be next. Next on Squawk Pod, what Charles Schwab is seeing with investor sentiment and the health of U.S. credit. CEO Rick Worcester joins us. Plus, a breakout year for his company.

9:55Thanks, Gen Z. Turns out Schwab is pretty hip. We're on YouTube, TikTok. We're actually the most followed financial services company on YouTube, which often surprises people.

10:09This is Squawk Pod with Joe Kernan and Becky Quick. Here's Becky. All right. Charles Schwab reported record third quarter profits of$2.36 billion riding that surge in retail investing. Revenue jumped 27 percent to$6.14 billion. That's also an all-time high. Joining us right now for a look at what's ahead is Charles Schwab, President and CEO Rick Rick Worcester. And Rick, thank you for coming into set to talk to us this morning. It's an honor to be here. Thanks for having me. You like when I do that. You said you like. I love when you do it because it's very hard to remember financial services' advertisements.

10:44The commercials, they do backflips. The Voya one with the funny little red. But that is very distinctive because you got that guy. It's very memorable. He's a great actor. Carl. Carl. Carl. And he just, he does really bad. He's one of those financial analysts at a full-service firm, and Schwab just undercuts him every step of the way, right? He gets a little frustrated with us. He does. Well, if we're looking at the earnings, it's really been a banner quarter for you, not to mention a banner year-to-date so far. Let's run through some of these numbers on this. Total client assets up 17 % year-over-year to a record$11.59 trillion.

11:24Daily average trades up 30 % year-over-year. every number you look at, you guys are kind of knocking it out of the park. But maybe one of the ones to really focus on is brokerage accounts, a million plus new brokerage accounts for the fourth consecutive total. That's a pretty big deal. What's happening? Why are these people coming in besides maybe the advertising? I think they're coming in because we're delivering for our clients. And we don't make our clients make any trade-offs. We have a great digital app like others, but they can also call in. We took 7 million calls in the last quarter of clients asking questions like, hey, I watched Squawk Box this morning and people are talking about credit.

12:03What's the deal? Should I stay invested? We had hundreds of thousands of people walk into our branches in 400 communities across the country. So the fact that we're there for clients making a difference locally and helping them achieve their financial dreams, that's what's driving more and more clients to Schwab. It is a hardcore fight right now between all the brokerages that are out there, whether it's Schwab, whether it's Robin Hood, whether it's Morgan Stanley. You all are the number one in retail trading, no close second. I think you have 7.4 million daily average trades versus 4 million at Robinhood.

12:34Morgan Stanley has less than a million. But there is a war at this point to try and win these customers. What do you do in that fight? Well, everyone's coming after us because we are the leader and there isn't a close second. And what we do to win the fight is show up every day and make sure we deliver for our clients. And I think for traders, what we offer can't be matched. The benefit of what we do is we have 1 ,000 former trading professionals that wake up every day and answer the phones for our clients. We put on 35 hours a week of live trading coaching for our newer investors. And we have what we think is the best platform in Thinkorswim, which we acquired from Ameritrade.

13:07So we win by delivering the broadest experience and the best experience in the industry, and we're going to keep doing that. I was kind of surprised at the demographics you have that are coming in. It's younger than I would have anticipated. It is younger. It turns out Schwab is pretty hip. We're on YouTube, TikTok. We're actually the most followed financial services company on YouTube, which often surprises people. And we're winning with the young investor. A third of our new to firm households are Gen Zers under the age of 28. And they're coming to Schwab because they want to engage in their financial life.

13:37They want to have a plan. They want guidance along the way. They want access to our research and education. And we're providing all of that, which is why we're winning with the young investor. Your stock for the year to date, I think, is up about 26%. And by the way, that coincides with when you took over the company. So congrats on that. Thank you. What are the hardest things about what you're working with right now, though, with competition that's tough up there? Right now, you've got the market going in your favor with all of the new highs that we've been hitting. How much is that at risk if you get into some trouble, if you have these lower days, higher volatility days?

14:10What happens? You said you get calls from all these people. What are they asking about right now? We have 46 million client accounts. So we see a range of behaviors. We have a lot of active traders. Those active traders, they've been buying dips, selling the rips, actually. And we have a lot of long-term investors who, when they call, we talk to them about diversification. We talk to them about not timing the market, but time in the market. One of the interesting things we've been talking to our clients about more recently is that the S &P is as concentrated as it's ever been. Does that concern you?

14:39Well, we want to talk to our clients about the power of diversification. The top 10 stocks in the S &P today are 38 % of the index. That's more than double where it was 10 or 15 years ago. And so the benefits of diversification and thinking about your portfolio are as important as they've ever been. And those are the kinds of things that we're talking to our clients about every day and trying to help them because we're in the outcomes business. We're trying to help our clients achieve their financial goals. Diversification into what, I guess, becomes the question. Well, you can buy a broader variety of indices, different stocks, bonds.

15:10Bonds are actually cool. Again, with rates coming down, clients are more interested in actually owning bonds versus being in cash. So we're talking to clients about a variety of asset classes. You're adding new things, too. I think crypto ETFs are on the lineup. And you're looking to private assets. Yes, we've been active in both. So in crypto, we do offer crypto ETFs, Bitcoin futures, closed-end funds. In fact, our clients own 20 % of all the crypto exchange-traded products in our country. So they've been very active. We've seen visits to our crypto site go up 90 % in the last year. It's a topic that's of high engagement.

15:47And for privates, we have made private investments available to our clients. We've done through third-party managers like KKR and Apollo and folks like that. And we've also stood up a team of alternative experts. If you want to invest in alternatives at Schwab, you're going to need to talk to a professional to make sure they're right for you and to make sure you find the right strategy for you. How much demand is there for those alternatives? Is it been what you expected in terms of the demand going into it? Has it been stronger or less? That's about what we expected. There's a lot of interest in privates.

16:19I think anything that can potentially offer some diversification to clients is of interest to them right now. And that's why privates are top of mind for many retail clients. Rick, let's talk about the credit issues that really roiled the financials yesterday. You're a bank as well as a brokerage. You see loans that are out there. what questions do you have from your retail traders, but also what do you see just in terms of how fragile any of this is if there were bad loans that were being made as credit standards relaxed with good times? A couple of thoughts. First, our bank was built for investors.

16:55We don't lend. We only lend to our clients, and we only lend against their assets. So we have never really had a credit issue in the history of our firm, and when we're not lending to clients, we're investing in government-backed securities. Now, when I look outside at the industry to others that are making those loans, I don't think we're seeing anything yet that's systemic. You know, you don't see it in high yield spreads. Volatility is up a little bit. But we're not seeing the indicators that would suggest this is a broad-braced credit issue yet. And also the economy, I think, is hanging in there.

17:26Unemployment is still relatively low. So it's hard to see at this moment it being a systemic issue. No, I was going to wait until the end of the interview. I have golf stuff to talk to him about. So get all the substantive issues out of the way. How many calls did you get yesterday from clients who were wondering about what to make of these credit issues and the pressure on the financials? We're sitting right near all-time highs for the major averages. But you do have little areas that feel like there are questions that maybe feel a little bubbly. And there have been a lot of questions raised about those things.

18:00The pullback we saw last Friday, the pullback we saw yesterday. again from near all-time highs but what do you get what what do you hear from your clients when that happens the big thing we hear is the clients wealth is higher than they expected to be at this point because markets are up so much and you know we've ripped since April we're up 35 % on April lows and so a lot of clients are coming through our door saying gosh I have more money than I thought it would have how how can you help me diversify that or how I've got a really concentrated position I've made more money in Nvidia or Broadcom or Tesla.

18:32How can you help me get out of that position without paying big taxes? Those are the kinds of questions that clients are asking us. We try to steer clients away from saying, should I be all in or should I be all out? Those are really difficult decisions to make because one, you have to be right at the time you get out and then you've got to get back in at the right time. It's really difficult, but we can help clients with a lot of ways to protect their assets. What are ways that you tell them if they say, I'm really up in NVIDIA, what do I do at this time of the year? Are you telling them to balance it off for tax purposes against something else?

19:06There's lots of strategies that they can take. They can collar it using options. We're offering exchange funds for clients, which allows you to exchange a concentrated position and get a diversified index back without any tax consequences. There's new long, short strategies that you can use to offset the gains in those positions so you can reduce the size of your position over time. There's lots of things we can and are doing for clients. And our advisors, our 16 ,000 advisors that we support are doing for their clients. I'd say it's the hottest issue of the moment is what do I do with my big gain in some of these stocks that have really run?

19:42Those are some first class problems to have. They are. How's Chuck? Chuck is doing really well. He called me last week, Joe, you'll appreciate this. And he had a little, you know, a little spirit in his voice. And I checked. I said, Chuck, what's happening? He said, well, I just played a great round of golf. And so I said, Joe, the natural question, did you beat your age? He said yes, by 13 shots. Wow. 75? He shot a 75 with two double bogeys. We're talking Charles Schwab. Chuck Schwab, yeah. That's the only goal anyone needs to have in life. Because either you live old enough, if you're horrible, you live to 99.

20:17That's your point? Yeah, that's my name. If you're horrible, you live to 99. And if you shoot 75 when you're 75, you have a lot of time. to play some golf. So you're doing okay, but I wondered about it. And you were captain at Villanova? I was. Of the golf team. Yeah. You wouldn't know it if you watched me golf. Well, what I was going to say is to all the Charles Schwab shareholders, he's like a 25 now. So you never play golf because you're in the office 18 hours like working on, you know, trying to maximize profits for Schwab. 100%. The only time I go on the golf course is... What is your handicap now?

20:52I'm a five handicap. You're a five. But the only time I go on golf is I'm trying to get my 12-year-old interested in it. So I take him out, and the main thing is to help him learn patience because you have to be incredibly patient to like the game of golf. You do. And you don't have to be a bit of a masochist, I think. Yeah, exactly. A good walk, spoiled. Yeah, and you must get to play Pebble. What Chuck did for Pebble will last forever, I think, and those other guys that know the par 3 and everything else. He's the most generous man in the world. He's done so much for the game of golf. He's also, I think, done more for the financial services and the retail industry, retail investing industry than anyone else in our country.

21:32When you got hired, did he know that you had been captain of Villanova? I don't think that he knew I was a golfer, but as I was getting to know him, he took me out for a round of golf, and I was incredibly nervous. And I hadn't been playing any golf. And the first eight holes, I went four under par. And he said to me on the walk to the ninth tee box, he goes, do you ever work, Rick? And that's when you started shanking. I didn't play as well the back night. Words I've never said in my entire life. On the first eight holes, I was four under par. Yeah, I have never. I had it going. I was lucky. I have never said that.

22:08Rick? Well, Rick, we are very happy that you're here, impressed with the results that you put out, and we hope you'll come back soon. Well, thanks. I love your show. Thanks for having me on. Thank you. Appreciate it. Rick Worcester. Still to come on Squawk Pod, the rest of today's stories that got us squawking. Ray-Ban Parent is reaping the benefits of its partnership with Meta. You got sork glasses? Yeah. What are they doing? You bought, who are you, sorkin'? I bought them like a year and a half ago. And a check on the president's approval ratings from Steve Leisman. Independence vote economics.

22:43It's that simple. Plus a very special report from Washington, D.C. I can report to you exclusively today. We'll be right back.