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Investing.com -- S&P Global Ratings has revised its outlook on Charles Schwab to positive from stable, while affirming its ’A-/A-2’ issuer credit ratings.
The improved outlook reflects a substantial reduction in Schwab’s unrealized securities losses, a sharp increase in adjusted regulatory capital ratios, and better management of interest-rate risk and balance-sheet volatility.
The company’s Tier 1 leverage ratio, adjusted for unrealized losses on available-for-sale securities, rose to 7.3% in September 2025 from 4.9% at the end of 2023. Unrealized losses on both available-for-sale and held-to-maturity securities have fallen by almost half from their peak levels.
S&P noted that Schwab’s risk-adjusted regulatory capital ratios now exceed those of most large banks, whether adjusted for unrealized losses or not.
Despite an accelerated pace of stock buybacks, S&P expects Schwab’s capitalization to remain strong. In the first three quarters of 2025, the company returned $8.5 billion to shareholders through preferred stock redemption, share repurchases, and common stock dividends, exceeding its $6.4 billion in earnings for that period by about $2.1 billion.
The company’s adjusted Tier 1 leverage ratio of 7.3% now sits above management’s target range of 6.75%-7.00%. S&P expects preferred stock to remain around 16% of total adjusted capital.
Schwab has enhanced its interest-rate risk management by using derivatives to reduce the duration of its securities portfolio. As of June 2025, the duration of available-for-sale securities was reduced to 2 years, down from 2.4 years at the end of 2022. The company is also exploring options to sweep clients’ cash balances to third-party banks to reduce balance-sheet volatility and interest-rate risk.
The company’s GAAP pretax margin increased to 47% in the first three quarters of 2025, up from about 38% in the same period last year. Earnings benefited from higher net interest income as net interest margin rose due to reduced higher-cost borrowings and robust loan growth.
S&P could raise Schwab’s ratings in the next two years if the company continues to manage its balance-sheet and interest-rate risks prudently while maintaining solid capitalization and performance.
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