Discount broker-banker Charles Schwab (SCHW) is one of the tortoises of the financial world. The company was the early leader of discount brokerages but is managed conservatively. It doesn't put its capital at risk on its own account. Its technology platform is competitive, but no better than those of rivals like E-Trade (ETFC) and TD AmericaTrade (AMTD). Its trading costs are low, but not the lowest. Its investment offerings are broad, but not the broadest. It makes investments on its customers' say-so, and it runs a consumer bank focused on those same customers. It even makes, and holds, mortgages.
What's most impressive about Schwab is its balance sheet. Assets have doubled since 2007 and it has hardly any debt. It's done this by becoming more of a finance company, its cash flow now coming almost wholly from that source.
Compare that to JPMorgan Chase (JPM), today's most pleasant earnings surprise, the earnings driven by results at its investment bank. Since the 2008 bank bail-out the company has regained its status as the king of the Wall Street banks, with CEO Jaime Dimon sometimes called the King of Wall Street.
So let's say that a year ago, with the crisis in the past and Dimon riding high, you had $10,000 to invest in one or the other of these stocks. Where do you think you'd be ahead today?
With Schwab. Both companies' prices peaked in February and are well off those highs. But while Morgan is up 1.09% for the year, Schwab is up 5.37%. More important, Schwab is currently getting a P/E of 26.57 from investors, against a mere 9.06 for Morgan. Tortoise one, hare zero.
I hold stock in neither of these companies, but I keep my money at Schwab, because it's not going to run off to the race track with it. It leaves me to my own decisions, win or lose, and my IRA assets leave me with a very good deal for basic banking functions.
Back in the 1990s, I joked to friends that I had a “bookie named Charlie” I would call when I had a hot tip, but these days most of my assets are in very boring mutual funds, most managed by companies other than Schwab, and I treat it as I would a local bank. I even financed my house with it.
That's what Chase once was, a trustworthy bank, but as part of Morgan it has become a high-risk and high-reward play. Chase took $25 billion in government money as part of the TARP bailout, putting all its operations under scrutiny, and it's accused of putting its own interests ahead of those of its customers.
I once had a Chase credit card, after it acquired Washington Mutual. I canceled it and cut it up. But I'll keep my Schwab ATM card until it's pried from my cold, dead hand.
And that's what banking is supposed to be about.