Charles Schwab 2011 Annual Report Download - page 35

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THE CHARLES SCHWAB CORPORATION
- 7 -
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All
such filings are available free of charge either on the Company’s website or by request via email
(investor.relati[email protected]), telephone (415-667-1959), or mail (Charles Schwab Investor Relations at 211 Main Street,
San Francisco, CA 94105).
Item 1A. Risk Factors
The Company faces a variety of risks that may affect its operations or financial results, and many of those risks are driven by
factors that the Company cannot control or predict. The following discussion addresses those risks that management believes
are the most significant, although there may be other risks that could arise, or may prove to be more significant than expected,
that may affect the Company’s operations or financial results.
For a discussion of the Company’s risk management, including technology and operating risk, credit risk, concentration risk,
market risk, fiduciary risk, and legal and regulatory risk, see “Item 7 – Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Risk Management.”
Developments in the business, economic, and geopolitical environment could negatively impact the Company’s
business.
The Company’s business can be adversely affected by the general environment – economic, corporate, securities market,
regulatory, and geopolitical developments all play a role in client asset valuations, trading activity, interest rates and overall
investor engagement, and are outside of the Company’s control. Deterioration in the housing and credit markets, reductions in
short-term interest rates, and decreases in securities valuations negatively impact the Company’s net interest revenue, asset
management and administration fees, and capital resources.
A significant decrease in the Company’s liquidity could negatively affect the Company’s business and financial
management as well as reduce client confidence in the Company.
Maintaining adequate liquidity is crucial to the business operations of the Company, including margin lending, mortgage
lending, and transaction settlement, among other liquidity needs. The Company meets its liquidity needs primarily through
cash generated by client activity and operating earnings, as well as cash provided by external financing. Fluctuations in client
cash or deposit balances, as well as changes in market conditions, may affect the Company’s ability to meet its liquidity needs.
A reduction in the Company’s liquidity position could reduce client confidence in the Company, which could result in the loss
of client accounts. In addition, if the Company’s broker-dealer or depository institution subsidiaries fail to meet regulatory
capital guidelines, regulators could limit the subsidiaries’ operations or their ability to upstream funds to CSC, which could
reduce CSC’s liquidity and adversely affect its ability to repay debt and pay cash dividends. In addition, CSC may need to
provide additional funding to such subsidiaries.
Factors which may adversely affect the Company’s liquidity position include a reduction in cash held in banking or brokerage
client accounts, a dramatic increase in the Company’s client lending activities (including margin and personal lending),
unanticipated outflows of company cash, increased capital requirements, other regulatory changes or a loss of market or
customer confidence in the Company. Schwab may also experience temporary liquidity demands due to timing differences
between clients’ transaction settlements and the availability of segregated cash balances.
When cash generated by client activity and operating earnings is not sufficient for the Company’s liquidity needs, the
Company must seek external financing. During periods of disruptions in the credit and capital markets, potential sources of
external financing could be reduced, and borrowing costs could increase. Although CSC and Schwab maintain committed and
uncommitted, unsecured bank credit lines and CSC has a commercial paper issuance program, as well as a universal shelf
registration statement filed with the SEC, financing may not be available on acceptable terms or at all due to market
conditions and disruptions in the credit markets. In addition, a significant downgrade in the Company’s credit ratings could
increase its borrowing costs and limit its access to the capital markets.