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Schwab Taps Credit Markets To Raise $2.5 Billion In Debt

Per WSJ this evening ... read what you will into it.....

"Schwab Taps Credit Markets To Raise $2.5 Billion In Debt"

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.

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  • edited May 17
    May be it was just talk or hubris that Schwab could handle the flight of all uninsured deposits from its current liquidity (counting access to Fed BTFP & Fed Discount Window). It is issuing these bonds now at much higher rate than it could last year.

    In response to recent flight of "cash" from Schwab Brokerage and Schwab Bank, Schwab has not changed anything - i.e. it hasn't raised deposit rates and hasn't considered offering m-mkt funds as core/settlement. It has just issued bold statements hoping that this will pass. So, one can ask, why issue bonds now? Good that it isn't issuing equity.
  • I was looking at my stake in SEQUX today since I am moving it to Fidelity. Its top holding is Schwab at about 7.5%.

    Might be time to realize the tax loss and rearrange the deck chairs.:)
  • Barron's article title says all: "Schwab Raises $2.5 Billion in Bonds to Shore Up Finances"

    Nothing new in the article that is likely behind a paywall.
  • @YBB…. As a long time Schwab customer I follow all things Chuck closer than others. My perception is that all my investments are safe but my Schwab Bank checking might pull a FRB or SVB and become something else. My question is whether a Schwab Prime money market or Schwab Treasury money market at greater risk than similar funds at another brokerage? And more broadly how these funds will fare in case of default compared to any FDIC insured account? Thanks in advance for your reply.
  • Hey Guys- Schwab Brokerage isn't going anywhere. It's "too big to fail", for sure.

    Now Schwab Bank, that's another story- but if the bank goes it isn't going to take down the brokerage with it.
  • I have Fido, Schwab & also Vanguard brokerages. I try to follow what is going on with all of them.

    It looks like at all players in the DC have now said that US debt default if off the table - McCarthy was dragging his feet. So, something will be done - debt-ceiling increase for a while or a very short-term extension for a few says while talks go on.

    In general, retail-prime m-mkt funds can have gates/fees on short notice, but government m-mkt funds are unlikely to have gates/fees.
  • So the brokerage, Schwab, not the bank issued the bonds ?
  • edited May 18
    I think it is the parent/holding co (for Brokerage, Bank, etc), or SCHW, that issued the bonds. Nonbank financials can own banks only with a holding co structure.
  • Yes, that's what I was trying to say- SCHW owns/controls both the brokerage and the bank. It seems to me that the bank could get into trouble without much spillover to the brokerage. I'm thinking that if the bank went away completely the brokerage would need to do some restructuring to compensate for that, but there shouldn't be any financial impact.

    As a customer, you don't even need to have a Schwab bank account. You can also have a Schwab bank account without having a Schwab brokerage account.
  • Wish they'd issued CDs on those terms!
  • @Old_Joe : What is it that I'm missing ? As I understand it, if you have a brokerage account & sell something the money from the sell is deposited into their bank & from there you need to move it into CD, MM , other equity.
    This is in reference to your statement,
    "As a customer, you don't even need to have a Schwab bank account."

    Have a nice day, Derf
  • @Derf- Hey there- no sir, the brokerage maintains a cash account, separate from their bank, and that's where your unallocated cash resides. However that account isn't a MM account, isn't protected by the FDIC, and pays next to nothing. You're correct- from that account you can then move cash into another investment, or to another place:

    • It's easy to set up a transfer arrangement to an external bank or financial house to transfer cash into or out of the brokerage account.

    • If you do have a Schwab bank account, it's simple to transfer cash instantaneously between their bank and the brokerage. Your checking account on the bank side also pays next to nothing, but is covered by the FDIC. I don't know if their bank savings accounts pay anything decent or not.

    • You can also set up transfer arrangements to external banks or financial houses from the bank side if you want to.

    Take care.
  • Schwab Bank pays whopping 0.45-0.48% on its checking and savings accounts.
  • Schwab Bank pays whopping 0.45-0.48% on its checking and savings accounts.

    Hey it's probably still more than they pay their brokerage sweep account!

    Amazing that in 2023 they still want folks to buy into their (expensive) MMFs and take an extra step to move funds around when raising/storing cash in-between buys/sells, which is just as old-school a mindset as thinking OEFs with front-end loads are a good idea.

    I just use t-bills instead for cash at Schwab ... sure, it's essentially the same process as using one of their MMFs, and they probably profit a few bps from the spread, but I feel less annoyed by that ... and probably come out a tiny bit ahead anyway in the end.

  • edited May 19
    I believe that Schwab has claimed that the low miniscule rates on their cash accounts are used to partially subsidize their "free" services in buying and selling various funds and other investments on the brokerage side. FW that's worth.
  • Actually, for the vast majority of customers, uninvested cash held in a Schwab brokerage account is deposited at an affiliated Schwab bank.
  • Also in the category of FWIIW, Jim Cramer whooped up SCHW on his show tonight, a segment I caught by accident. Our family has a handful of accounts at Schwab, so the presentation (loudly shouted) piqued my interest. The stock is down almost 38% YTD. Some sage here must know if a Cramer recommendation is a contrarian indicator.

    The Schwab Bank account gives you a debit card, no FOREX premium, and refund of ATM fees from other banks. As @Old_Joe said, transfers, into or from the bank account and your brokerage account are simple. No fees for ACH transactions in my experience; this is not true, for instance, at BOA.
  • "Actually, for the vast majority of customers, uninvested cash held in a Schwab brokerage account is deposited at an affiliated Schwab bank"

    @sfnative- not sure about that. We've used Schwab for many years, and when cash is generated from dividends or the sale of a position Schwab always deposits that cash in their brokerage cash account, which has no FDIC protection. If I want FDIC I have to transfer from the brokerage account over to the bank account. As I mentioned, transfers are no-hassle instantaneous either way between brokerage and Schwab bank.

    We always receive separate statements from Schwab- one from the bank and another from the brokerage.
  • "The Bank Sweep feature automatically 'sweeps' the uninvested cash in your brokerage account into one or more banks ('Program Banks'). Cash in the Bank Sweep feature is eligible for FDIC insurance." You can check this by looking at "Balances" on your account. You will, in all probability, see that your cash balance has been swept into Schwab Bank.
  • edited May 20

    It's entirely possible that I'm ignorant of some things here. I have no idea what a "Program Bank" is, nor have I ever seen anything on Schwab referring to that. If I visit our "Account Summary" there are two separate entries for cash accounts- one for the brokerage and one for the bank.

    Here's a reproduction of the top lines of our current Account Summary:


    Note that the brokerage cash account is currently $54,014 (a CD just matured), while the bank account is $10,046.

    I really don't know what else to say about this.

    Regards- OJ
  • If you're curious you could try this. Log onto the website and under "Accounts" (for your Living Trust) click on "Balances," then scroll down to "Balance Details." I'm guessing you'll see that your "Cash & Cash Investments" are deposited with Schwab Bank. The quotation I included in my prior comment comes from an Account Agreement, where all this is explained (sort of . . .). Uninvested cash was -- once upon a time -- held in a money fund but that changed after the bank was established.
  • Not really- there are two separate entries there:
    • The first shows "Cash and Cash Investments Total $54,014.50"

    And down in the extreme lower right of the "Balance Details" section:
    "Funds in linked Bank Account $10,046.00"

    And that is agreement with the Account Summary as shown above. The only account we have at the Schwab Bank is a checking account. I'm not sure if that's the same on your side, or if that actually makes any difference at all. This whole thing with the apparent differences in our accounts is very puzzling to me.
  • The way brokerages service cash accounts (variously called "transaction accounts", "core accounts", etc.) is confusing by design. Sweeps happen automagically (pay no attention to the man behind the curtain), and investors are not supposed to concern themselves with details.

    Those details vary from brokerage to brokerage but are generally similar. A brokerage transaction account is used to pay for investment purchases and to hold proceeds from sales, interest and dividend payments.

    Investors typically have a choice of places where this cash may be kept. One option is a bank sweep. Brokerages use one or more banks (called "Program Banks") to hold the cash of investors choosing this option. Even though you get FDIC insurance "passed through" to you from the banks, you don't actually have a bank account at any program bank. Rather, the brokerage aggregates all the cash together and has a single bank account at each program bank for this purpose.

    If brokerages own banks, they generally use those banks as their program banks. So Merrill uses BofA. Schwab uses Charles Schwab Bank, Charles Schwab Premier Bank, Charles Schwab Trust Bank, TD Bank, and TD USA Bank. The latter two are not affiliated with Schwab. (Their use might just be legacy from when TD Bank owned TD Ameritrade; just speculating about status.)

    For checkwriting services, Schwab encourages you to open (and link) a Schwab bank account. It provides a combined application for a brokerage and a bank account. It provides combined reports (see OJ's image above). But the basic brokerage application (w/o Schwab Bank) also allows you to request checks & debit card (see section 5).

    Checkingwriting services are spelled out a little better for Schwab IRA brokerage accounts. Here's the IRA checkwriting disclosure. These checks are processed by BNY Mellon. So it is clear that for IRA checkwriting at least, you don't need to link to a Schwab Bank checking account.

    Aside from bank sweeps, the other main option at Schwab is Schwab One® Interest Feature (you're loaning the cash to Schwab; it gets SIPC protection). Some investors (employer plans, advised accounts) may also be able to use sweep shares of a MMF SWGXX.

    See also:

  • Thanks, @msf.
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