Financial services giant Charles Schwab (NYSE:SCHW) is raising $2.5 billion in long-term debt by issuing $1.2 billion of bonds due in 2029 and $1.3 billion of bonds due in 2034, the Wall Street Journal reported. SCHW shares were down 1.4% in Thursday’s pre-market trading.
The 2029 bonds are being issued at a 5.643% yield, 2.05 percentage points higher than U.S. Treasurys. The notes due in 2034 will offer a 5.853% yield, reflecting 2.27 percentage points spread. In a regulatory filing on Wednesday, the brokerage company disclosed that it would offer senior notes due in 2029 and 2023, but did not provide any details about the offering. Schwab intends to use the net proceeds from the offering for general corporate purposes.
Shares of Charles Schwab have lost nearly 38% of their value since the start of this year. The stock has been hit by the fears of a banking crisis since the collapse of Silicon Valley Bank and Signature Bank. Investors have been concerned about the decline in Schwab’s bond portfolio due to rising rates and the fall in deposits owing to the shift to higher-yielding products such as money market funds (this shift is called cash sorting).
In its April monthly activity report released last week, Schwab disclosed that the total client assets stood at $7.63 trillion as of April end, up 5% year-over-year and 1% sequentially. The company highlighted that April marked the third consecutive month of deceleration in client outflows, with the trend continuing in May.
CFO Peter Crawford said, “We remain confident that client cash realignment activity will abate during 2023 – helping client cash on the balance sheet resume growing in proportion with the growth in total client assets over time.”
Is Charles Schwab a Good Stock to Buy?
On Monday, SCHW stock rose 4% after Raymond James analyst Patrick O’Shaughnessy upgraded Charles Schwab to a Buy from Hold. The analyst noted that client cash sorting at Schwab is “tapering,” and this would support the balance sheet as well as net interest margin stabilization in the second half of the year.
Wall Street’s Moderate Buy consensus rating on Charles Schwab is based on 11 Buys, four Holds, and two Sells. The average price target of $64.35 suggests 24.2% upside.
