Your Evening Briefing: Charles Schwab Gets a Downgrade

Charles Schwab has been downgraded. Its clients have been pulling cash out of the firm’s low-interest-rate bank accounts at a speedy clip—twice as fast as was expected by Morgan Stanley. An analyst there in turn yanked the buy-equivalent rating on Schwab for the first time since he began covering the brokerage stock seven years ago. Client money is moving from so-called sweep accounts into money market funds at a rate of $20 billion a month, analyst Michael Cyprys wrote in his report. The downgrade reflects the heightened risk that analysts see in financial companies like Schwab, which is struggling with some of the same forces that hammered the now-collapsed Silicon Valley Bank. Schwab invested in long-term bonds at a period of record-low interest rates and is now sitting on losses on those investments after the Federal Reserve jacked up rates. “While clients aren’t leaving and Schwab has other sources of liquidity, earnings face more pressure than we had expected,” Cyprys wrote, lowering his forecast for profit this year and next by 30%.

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