UPDATE 2-Analysts see Schwab surviving crisis; shares up
(Recasts, adds more analysts' comments, share movement)
By Anurag Kotoky
BANGALORE Nov 20 (Reuters) - Friedman Billings Ramsey raised Charles Schwab Corp SCHW.O to "market perform" from "underperform," saying the investment brokerage was in a position to begin sweeping more client balances from money market funds into its bank, resulting in a significantly higher revenue yield.
Fox-Pitt Kelton, Bernstein Research and Sandler O'Neill also said Schwab, the biggest U.S. online brokerage, was capable of weathering the current financial turmoil and emerge healthier in the longer term with its strong funding position.
Shares of the company rose as much as 9 percent on Nasdaq, while the broader S&P Financial Index .GSPF was mostly flat.
Friedman's Matt Snowling estimated that out of Schwab's $202 billion in assets under management, about $67 billion is invested through money-market sweep and another $19 billion is invested in other tax-exempt funds.
"..We are not suggesting that Schwab will actually move anything close to that (remaining) $114 billion total but, for every $10 billion of cash moved from a money fund to the bank sweep, we estimate Schwab earns an additional $0.13 per share on an annualized basis," Snowling said.
Sweep accounting involves the automatic transfer of an amount of money that exceeds a certain pre-set level into a higher interest earning investment option, which is usually a money market deposit account.
In a sweep program, investors get the best interest rate without getting too involved in the bank procedure. "Schwab's strength has been a key advantage in attracting new business vis-a-vis weakened competitors," Fox-Pitt's David Trone said in a note to clients. Continuación...