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Schwab Shafted By Fed, Says Goldman

NEW YORK ( TheStreet) -- The Charles Schwab Corp. (SCHW - Get Report) was cut to "Neutral" from "Buy" by Goldman Sachs in a report published Wednesday that was bearish on the discount brokerage sector as a whole.

In downgrading Schwab, Goldman analysts cited a decline in yields on residential mortgage backed securities (RMBS) issued by Fannie Mae (FNMA)and Freddie Mac (FMCC) following the Federal Reserve's announcement last week that it would buy long-dated RMBS in an effort to boost the housing market.

So called "agency" RMBS make up 70% of Schwab's securities portfolio, according to Goldman, and the decline in yields may encourage pre-payments and "headwinds" in net interest margins. Net interest margins refers to the difference between a company's cost of capital and the rate it earns through lending.

Goldman's analysts see Schwab outperforming E Trade Financial (ETFC - Get Report) and Ameritrade (AMTD - Get Report), but still believe "upside in the stock is limited."

Shares of Schwab were down by 1.15% a few minutes after the opening bell Wednesday. Ameritrade and E Trade shares were also lower.

-- Written by Dan Freed in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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