Charles Schwab shares lowered to’hold’ from ‘buy’ by Citigroup analysts

Analysts at Citigroup lowered their recommendation on shares of Charles Schwab Corp. to “hold” from “buy” in anticipation of more tough news from the firm about its short-term earnings prospects.

Analysts at Citigroup lowered their recommendation on shares of Charles Schwab Corp. to “hold” from “buy” in anticipation of more tough news from the firm about its short-term earnings prospects.
The San Francisco-based discount broker, which is also the largest custodian of assets for independent investment advisers, is holding a business update Monday with analysts that is likely to generate “more bad news than good — specifically around [short-term] interest rates,” Keith Walsh, Citigroup’s lead analyst for U.S. brokers and asset managers, wrote in a report issued late Thursday.
Interest rates hovering near zero have forced Schwab and many of its rivals to waive fees on money market funds to avoid creating negative returns for investors.
In reporting a 31% drop in second-quarter net income to $423 million earlier this month, Schwab executives said that despite recent gains in the equities markets, the economic and market outlooks remain challenging, particularly because of fee waivers and reduced margin-lending revenue tied to lower activity and rates.
Schwab waived $30 million of money market fees in the first half of the year, and a company spokesman said it could give up as much as $200 million in lost fees for all of 2009, matching the firm’s most pessimistic scenario given to analysts last January.
Shares of Schwab, which are up 2.66% this year, closed Friday down 63 cents at $16.60 a share on the Nasdaq Stock Market.
The Citigroup analysts lowered their target price on Schwab’s stock to $18 and trimmed their estimate for its 2009 full-year earnings by 5 cents to 70 cents a share and for 2010 earnings by 10 cents to 90 cents a share.
Citigroup also late Thursday raised its rating of New York-based E*Trade Financial Corp. to “hold” from “sell” and increased the price target of the New York-based firm — a rival of Schwab in discount brokerage and online banking — to $1.50 a share.
It also raised its estimate of E*Trade’s 2009 results by17 cents to a loss of 52 cents a share, saying that progress made in the firm’s online brokerage business continues to be overshadowed by its mortgage and other banking losses.
Shares of E*Trade are up $23.5% this year, and closed unchanged Friday at $1.42 a share.