Schwab to Test The Waters

TimH posted that Charles Schwab will be testing the waters today with a new fixed-rate reset perpetual preferred share issue. The preliminary prospectus can be read here.

This is a $1,000/share issue and the shares will not be publicly traded. Just the same the issue is of note as it has been weeks (or months) since we have seen a new issue of preferred stock. I will be curious to see the level of pricing on this new issue. Given that Schwab has a couple outstanding perpetual preferreds that are trading strongly I suspect the coupon on this new issue will be pretty darned meager.

Last week Medical Transcription Billing Corp (MTBC) did sell some preferred shares (MTBCP) (729,000) – but it was a reopening of a previous issue. The company is a serial issuer of preferred shares and after this new sale there will be over 4 million shares outstanding.

33 thoughts on “Schwab to Test The Waters”

  1. Somewhat comparison will be bunch of resets from major Canadian banks.
    Ticker: RY.PR.Q RY.PR.R TD.PF.G BNS.PR.E BNS.PR.G
    Price: 23.64 24.36 23.885 23.37 24.27
    Current Yield: 5.82% 5.64% 5.76% 5.88% 5.67%
    Reset Rate: 4.53% 4.80% 4.66% 4.51% 4.72%
    Reset date: 2021-05-24 2021-08-24 2021-04-30 2021-04-26 2021-07-26
    If Charles Schwab issue had a Canadian origin I would expect it to trade around 24 CAD.

    1. To LimitYourRisk; Does an american investor need to be aware of any special taxation regarding the purchases of Canadian Banks??? Second question, out of the names you listed which is considered the safest in your opinion??? I have never bought a foreign stock so just asking.

      1. Chuck,

        Hey buddy… If bought outside of an IRA, you’ll get hit with a 15% Canadian tax on any divvies/interest payments. This will be assessed at the time the payment is made to your brokerage. For this reason, I only bot Canadian securities in IRAs. There is a way to apply for a credit when you do your taxes, in most cases.

          1. Depends on your brokerage, from what I understand. Not all brokerages or their affiliates honor the tax treaty with Canada. The tax treaty should be honored but some here on the forum still have the 15% witheld even from IRA’s. I use Merrill primarily, and have never had an issue with them taking the 15% from me.

        1. Hello my Friend Affinity; How is the research at Merril regarding common stocks??? Schwab sucks. I spoke to my Schwab Rep in Chicago moments ago and he told me this Schwab 5.375% coupon is already trading at over 101+. So I after all this hullabloo I decided against it. It was a very frustraiting day yesterday. First the coupon talk was 6%, then nobody at Schwab could tell me the reset rate. Then this thing comes out way below the talk and already trading over par. Schwab is very bad as to how they treat their customers in my opinion. I have over $10 Mill with these clowns but it really doesn’t matter. Thats WHY I asked you about Merrill.

          1. The research is pretty good, actually. You get ‘free’ S&P reports, free BofA reports, free Morningstar reports, and free Trevis research info. I don’t do much at all with the corporate bond research center but being that they are tied directly in with BofA, I’d tend to think they have access to quite a bit of info and offerings.

            I only use Schwab for ETF investing. Nothing else at the moment.

            Hate to hear about your frustrations with this latest incident. I think the fact that so many of these people are working at home – is causing some of this disconnect with getting good info because you can’t just get up and walk over to a colleague or down the hall to another group and get some help. Who knows. There is also plenty of incompetence, plain and simple. Even at Merrill.

          2. ChuckP: I hear ya. I am getting pretty frustrated with Schwab myself, even before the lock-down. The Secure Retirement Act went into effect on Jan 2nd. One of the provisions is it lets people over 70 1/2 contribute to their IRA’s as long as the have earned income. I am 71, still working and want to fund my IRA and my wife’s spousal IRA (she is long retired). Anyway, when you go to the online transfer page it won’t let you transfer money to your IRA, says IRS rules if you are 70 1/2 you can no longer contribute. I have been complaining about that for months. lots of promises, still broke. Last time I called a Rep said they can do it manually for me, so I asked them to move $1000 from my Schwab checking to my IRA as a contribution for 2020. I checked a couple days later and the journal shows a $1000 IRA Rollover credited to my IRA, no mention of 2020 whatsoever, not sure how to fix that. Thinking of opening another IRA account just for future contributions, but then I would have to open one for my wife as well, really not happy with those folks right now.

      2. Chuck – go over to Canadian discussion section of the website for tax questions.

        Strongest Canadian financials would be RY and BNS in banking and GWO and SLF in insurance.

      3. Chuck P, A4I answered you regarding taxation. With regards to quality and safety from the “The World’s Safest Banks 2019” RY (Royal Bank of Canada ) in 12th place, TD (Toronto-Dominion bank) in 13th, BNS (Bank of Nova Scotia) in 20th place. And of course they rank 1,2,3 in the “Top 10 Safest Banks in North America”
        I own TD.PF.G and BNS.PR.E
        You will need to have access to the TSX (Toronto Stock Exchange). I am not aware if they trade on OTC exchange in USD denomination.

        1. TD is the symbol in the US and I used to own it. Same for RY. Both did well but i jettisoned both in favor of JPM common and preferreds, as well as BAC preferreds. Both need to be bought in IRA’s or you will get the 15% tax on divvies withdrawn.

          BNS is the ticker for Bank of Nova Scotia in the US. All of these trade in the US in US dollar values.

    2. Are the symbols correct? I cannot find these on Fidelity, Schwab, or Quantum Online.

      I did find a TDBKF which works…reset rate 3.6%.

      1. RB – Canadian companies trade mainly on the TSX. Use the TSX website. And the companies’ own websites.

        Many have the same trading symbol for the NYSE, for the common anyway. For preferred you can start at otcmarkets.com.

        The info available is very deep.

  2. Per FWP, initial coupon is 5.375, and spread is 4.971.

    Based on current 5-year treasury rate this is a 100% “fair” issue, meaning no built-in coupon decrease. That’s what you expect with institutional issues.

    Size is worth noting: it 2.5 BILLION $.

    Depending on where it trades, I may buy.

        1. yeah, I do too. I dont particularly like owning these kinds of issues though, more hassle than its worth usually unless seriously mispriced

    1. In the secondary market today still exist one of their perp with >5% yield, check for CUSIP808513AR6.
      Just some weeks ago all of their 3 perp issues was at price with >6% yield. I haven’t buy them since they are non-cumulative but they constantly came across to me when I was scanning for a yield.

  3. Well I have lost quite a bit of faith in my Schwab team but here’s what they told me just moments ago. The coupon is 5.375% because of very high demand. The reset rate is 4.97% + the 5 year treasury CMT. Today thats 39 basis points. Thats what I was told. Its probably worth about a wooden nickel but we’ll see. Not sure if I want to buy it or not. Not overly impressed how this whole thing was handled by Schwab . My point being I’ve been given different answers on this whole thing today.

  4. Schwab had 3 existing institutional preferred in the market prior to this one. All are F2F based on 3-month LIBOR. The new one, as noted, will reset off the 5-year Treasury.

    Nothing new is going to come to market based on LIBOR. It’s either going to be SOFR (for 3-month) or Treasuries (for 5-year).

    When the FWP comes out you must look at the rate and the spread in tandem. U.S. issuers of 5-year resets have a bad habit of offering a teaser on the initial rate. The reset rate, considering the spread and 5-year rate at time of issue, has a built-in drop if this is the case.

    NI-B is is an example of a reset with a big built-in rate drop. Buyers slathered all over the initial coupon without apparently looking at the reset rate. That is a good way to buy a low yielding perp, with little chance of ever being called. That 6.5% initial coupon would reset to barely 4% if resetting today.

    The new SCHW issue being an institutional issue is less likely to have the built-in rate drop. Institutional money won’t go for it.

    But we should know by this evening I would think.

  5. I’ve been a Schwab customer for many years because their trade execution is okay. I would never ever ask their advice. Most discount brokers are all the same. The pay for their employees is at the bottom of the industry scale and their expertise is dismal. Comparing them to college professors, the best ones are at the elite universities and the very mediocre are at Yoo Yoo State in the hinterland. It’s unrealistic to expect competent advice from Schwab personnel.

  6. In a preliminary prospectus it standard terms to have the coupon rate and reset rate blank. The final prospectus will fill these in.

  7. You are kidding, right? He is correct. The terms are standard. what isn’t known, since this is a prospectus supplement, what the rates are. that is determined at the time of sale and contained in the pricing supplement.
    But yeah, this is pretty standard fixed to float language with a floor, though they are using the 5 year, which is somewhat rare.

    Dividends will accrue on the liquidation preference amount of $100,000 per share of the Series G Preferred Stock (equivalent to $1,000 per depositary share) (i) from the date of original issue to, but excluding, June 1, 2025 (the “First Reset Date”) at a fixed rate per annum of %, and (ii) from, and including, the First Reset Date, during each reset period, at a rate per annum equal to the five-year treasury rate as of the most recent reset dividend determination date (as described below) plus %

  8. Yes, my guy at the Chicago office really dropped the ball on this particular issue. He told me that the lead underwriter sold the whole issue and its already spoken for. He said he could get me some in the “gray market” but as of yet he did not even have the cusip. # or the reset rate which will be tied to the 5 year treasury. Since it will NOT be publicly traded not sure why a guy would even want to get involved with it anyway. Kinda like trading by invitation only–LOL. Interesting to me that Schwab wouldn’t come out with something like this and offer it to their own Pinnacle Team customers. It just goes to show you how you think you mean something to a company and then find out NOT REALLY.

    1. Well, the prospectus tells you that.
      Joint Book-Running Managers

      BofA Securities Citigroup Credit Suisse Goldman Sachs & Co. LLC J.P. Morgan Morgan Stanley

      I think the phrase the salespeople use is “You don’t shit where you eat”

  9. I think on the previous thread on the “Monday Morning Kickoff” a commenter brought this up and the issue is sold out. Besides, he said it had some sort of weird call provision down the road which even a Schwab “bond guru” couldn’t explain to him.

      1. The issue hasn’t priced yet, so the terms are not available.
        The mechanism is standard- no “weird call provision”

      2. So if I understand you correctly they send me an email which I got early this morning. It has No Coupon Rate listed, it has No Reset Rate listed, it has No Cusip. # listed and then to add insult to injury Tim says it will NOT be publicly traded. So my question is since the books are now closed (their 2nd email to me) WHY did they even bother to send this email out to most likely thousands of their customers. Maybe Iam missing something but it seems kinda a waste of their time to even send something out on this one. My point being if a Schwab customer can’t even buy it and they most likely knew that then why waste everybodys time???

        1. Chuck P–the initial posting is the ‘preliminary prospectus’–meaning there will be a FWP (free writing prospectus) ,probably tonight, which will outline the terms (coupon and resets). This is the standard way all new issues come to market.

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