On Monday, Fitch Ratings affirmed its long term issuer default rating (IDR) on Charles Schwab Corp. (SCHW) at”A”. The rating outlook remained “Stable”. The rating agency expects the company’s overall financial performance to remain satisfactory over the near term.
Fitch’s confirmation is based on Schwab’s established franchises and conservative business model. The agency stated that Schwab’s asset management and retail brokerage franchises provide the company with a solid base for growth. However, as the company’s businesses are sensitive to the equity market and interest rates, any adverse changes in these could hamper growth prospects. Also, this is constraining an upward revision in the rating.
With interest rates remaining low, Schwab’s profitability is getting affected as a result of a fall in net interest margin. This is leading to significant fee waivers on the company’s money market funds. Fitch commented that Schwab’s ratings would come under pressure in the event of substantial client attrition due to poor investment performance or if the company experiences considerable losses in its investment and loan portfolios.
In the second quarter of 2010, Schwab reported earnings of 17 cents per share, slightly ahead of the Zacks Consensus Estimate of 15 cents but a penny lower than last year’s earnings of 18 cents. Results benefited from an improvement in trading revenues and asset management and administration fees and a decline in non-interest expenses.
The improvement of short-term rates in the quarter helped Schwab lessen the fee waivers for its money market funds to $113 million from $125 million in the prior quarter. However, the company expects money market fee waivers to continue until interest rates show an upward trend.
We suspect that Schwab’s results will be further impacted by the challenging market conditions and volatile interest rate environment; while focus on lower-cost capital structure and aggressive cost control efforts will brace the company in the upcoming quarters.
Schwab currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we are maintaining our long-term Neutral recommendation on the stock.
SCHWAB(CHAS) (SCHW): Free Stock Analysis Report
Zacks Investment Research
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With interest rates remaining low, Schwab’s profitability is getting affected as a result of a fall in net interest margin. This is leading to significant fee waivers on the company’s money market funds. Fitch commented that Schwab’s ratings would come under pressure in the event of substantial client attrition due to poor investment performance or if the company experiences considerable losses in its investment and loan portfolios.
In the second quarter of 2010, Schwab reported earnings of 17 cents per share, slightly ahead of the Zacks Consensus Estimate of 15 cents but a penny lower than last year’s earnings of 18 cents. Results benefited from an improvement in trading revenues and asset management and administration fees and a decline in non-interest expenses.
The improvement of short-term rates in the quarter helped Schwab lessen the fee waivers for its money market funds to $113 million from $125 million in the prior quarter. However, the company expects money market fee waivers to continue until interest rates show an upward trend.
We suspect that Schwab’s results will be further impacted by the challenging market conditions and volatile interest rate environment; while focus on lower-cost capital structure and aggressive cost control efforts will brace the company in the upcoming quarters.
Schwab currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we are maintaining our long-term Neutral recommendation on the stock.
SCHWAB(CHAS) (SCHW): Free Stock Analysis Report
Zacks Investment Research
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