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It’s time to move away from interest rate sensitive brokers such as Charles Schwab , according to Bank of America. Analyst Craig Siegenthaler double downgraded shares to underperform from buy, and lowered his price target, saying client cash sorting will continue to remain elevated in the first half of this year. Client cash sorting refers to clients moving cash out of lower-yielding bank deposits into higher-yielding alternatives such as money market funds. “This change is driven by our view that (1) client cash sorting will continue at an elevated pace in 1H23 (pressuring liquidity, interest earning assets & bank deposit account [BDA] levels) and (2) the Fed will end its interest rate hiking cycle by this summer, removing a powerful nearterm profit driver (while securities portfolio reinvestment opportunity remains),” Siegenthaler wrote Thursday. Charles Schwab outperformed last year, gaining 0.1%, and is “arguably the biggest beneficiary of higher interest rates across diversified financials,” the analyst said. Regardless, the analyst expects Charles Schwab’s revenue and profit growth will decelerate this year due to a constricting balance sheet. The analyst noted that client cash sorting jumped in the fourth quarter of 2022, is expected to remain elevated in the first half of 2023, before decelerating and concluding by the end of this year. The analyst’s $75 price objective, cut from $92 previously, implies shares can drop another roughly 7% from Wednesday’s closing price. Shares declined 2% in the premarket Thursday. —CNBC’s Michael Bloom contributed to this report.
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