Interest rate spike boosts fortunes of broker-dealers

Citi analyst upgrades Schwab to buy, boosts price targets for LPL, TD Ameritrade.
JUL 23, 2013
Broker-dealer executives have been waiting since the financial crisis for interest rates to rise, presenting an opportunity to boost profits on such rate-sensitive lines of business as margin lending and money market funds. Now, with long-term interest rates rising, the outlook for broker-dealers is improving, according to William Katz, an analyst with Citigroup Global Markets Inc. In a research note today, “With the Rate Genie Out of the Bottle, Time to Reposition,” Mr. Katz upgraded his view on broker-dealers to “neutral/positive,” from “neutral/negative.” Specifically, he raised his rating on The Charles Schwab Corp. to “buy,” from “sell.” In addition, he lifted his per-share target price for LPL Financial Holdings Inc. and TD Ameritrade Holding Corp. Low interest rates have erased fees on money market funds — fees that many broker-dealers used to apply directly to their bottom lines. Brokerage stocks are extremely sensitive to interest rate movements, and record low interest rates over the past few years have eviscerated formerly lucrative businesses. A “normalized” trajectory for Schwab's earnings-per-share yield is “coming into better view,” Mr. Katz wrote. “As rate expectations shift along with Fed 'tapering' discussion, [a] new $24 [per share] price target could prove conservative should non-bank-related earnings growth and capital return story both improve,” he wrote. Shares of Schwab, meanwhile, trade at $20.73 this afternoon. Mr. Katz also raised his price target for TD Ameritrade to $25 per share, from $18, and the target for LPL Financial to $40 per share, from $39.50. Both were trading, respectively, at $23.77 per share and $36.96 per share today.

Latest News

Why the off-channel comms problem is far from solved
Why the off-channel comms problem is far from solved

Despite a lighter regulatory outlook and staffing disruptions at the SEC, one compliance expert says RIA firms shouldn't expect a "free pass."

FINRA penalizes another broker dealer for social media miscues
FINRA penalizes another broker dealer for social media miscues

FINRA has been focused on firms and their use of social media for several years.

Advisor moves: LPL recruits Merrill alum, Raymond James adds defectors from Edward Jones and Janney
Advisor moves: LPL recruits Merrill alum, Raymond James adds defectors from Edward Jones and Janney

RayJay's latest additions bolster its independent advisor channel's presence across Pennsylvania, Florida, and Washington.

Cantor Fitzgerald to acquire hedge fund unit from UBS
Cantor Fitzgerald to acquire hedge fund unit from UBS

The deal ending more than 30 years of ownership by the Swiss bank includes six investment strategies representing more than $11 billion in AUM.

Navigating life’s big transitions for women clients
Navigating life’s big transitions for women clients

Divorce, widowhood, and retirement are events when financial advisors may provide stability and guidance.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave

SPONSORED The evolution of private credit

From direct lending to asset-based finance to commercial real estate debt.