Charles Schwab receives a rare downgrade as outflows rise

By:
on Mar 30, 2023
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  • Charles Schwab received a rare downgrade from Morgan Stanley.
  • The analyst downgraded the stock target from $99 to $68.
  • There are concerns about the rising outflows.

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Charles Schwab (NYSE: SCHW), the well-known broker and bank, received a rare downgrade by a Morgan Stanley analyst as concerns about its outflows continued. 

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In a note, Michael Cyprys, warned that the company’s clients were withdrawing money from its low-interest accounts at a faster pace than expected. As a result, he slashed his rating for the stock to equal weight from overweight. He also reduced the Schwab stock target from $99 to $68.

This was a rare downgrade considering that Michael has been one of the most bullish analysts in Wall Street. He started covering the stock in 2016 with an overweight target.

Other analysts have been concerned about the company. Analysts at Barclays, Goldman Sachs, Piper Sandler, and Deutsche Bank downgraded the stock. However, some like Citigroup and Goldman Sachs have upgraded the stock.

Charles Schwab came in the spotlight after the collapse of Silicon Valley Bank. The main concern is that the company is seeing a lot of outflows as yield-hungry customers search for a higher yield. 

Another concern is that the company has huge unrealized losses worth over $29 billion. These unrealized loose are because the company holds over $150 billion worth of debts to maturity with a weighted average yield of 1.75%. About $114 billion of these funds will mature in the next decade. In a recent note, a professor at New York University said:

“They basically saw higher interest rates coming. They didn’t know how long they would last or how big they would be, but they protected the equity by making the transfer.” 

Charles Schwab stock price has been in a steep sell-off after the collapse of SVB. It has fallen by over 37% from the highest point this month. It dropped by 1.45% in the pre-market session.

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