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BROKE THE BANK? Schwab Borrows $2.5 Billion

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Charles Schwab has been under intense scrutiny in 2023 as volatility has roiled the banking sector. Now Schwab has been forced to enter the debt market to borrow $2.5 billion. Justin Lahart reports in The Wall Street Journal:

Charles Schwab is selling $2.5 billion in long-term debt, people familiar with the matter said.

The brokerage giant said Wednesday in a regulatory filing that it would offer senior notes due in 2029 and 2034.

Schwab issued $1.2 billion of bonds due in 2029 and $1.3 billion of bonds due in 2034, according to a person familiar with the matter. The bonds due in 2029 were issued at a 5.643% yield, or 2.05 percentage point higher than U.S. Treasurys, while the notes due in 2034 were sold at a 5.853% yield or 2.27 percentage point spread.

By comparison, the company sold 10-year bonds a little more than a year ago at a yield of around 2.9%.

In its filing, Schwab said it would use the proceeds for general corporate purposes, including “investments in our subsidiaries and supporting business growth.” A Schwab spokeswoman declined to comment.

Schwab’s finances have been under scrutiny since early March, when the collapse of Silicon Valley Bank triggered widespread concerns over how other midsize banks would navigate higher interest rates and a loss of deposits. Schwab’s bank deposits dropped by roughly $40 billion over the first quarter, or 11%, as brokerage customers continued to shift idle cash into money-market funds and other higher-yielding investments. Schwab has moved to offset the loss of bank deposits by issuing CDs and borrowing from the Federal Home Loan Bank system. Those higher funding costs are expected to weigh on its earnings for another year or so. The company is also bracing for a wave of new regulations aimed at fortifying the finances of midsize banks.

Action Line: You’ve read my thoughts on Schwab before (see here, here, here, and here). Schwab’s borrowing is just one more signal you should separate your banking from your investments. When you want some help, let’s talk.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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