PJC Piper Jaffray Companies

Earlier this week, The Charles Schwab Corporation (SCHW) announced a tie-up with Piper Jaffray Companies (PJC) – a leading asset management company – to expand the reach of municipal bond offerings to retail investors. Through this collaboration, Schwab will provide its clients an access to Piper Jaffray’s new municipal bonds with the help of its BondSource platform.

For long, Schwab’s clientele was unable to access the variety of municipal bonds offerings owing to limited reach of Schwab’s bond business. With the Piper Jaffray alliance, the company’s customers will now be exposed to a wide array of municipal bond offerings in the mid-western region of the country. Moreover, Piper Jaffray served as an underwriter/ financial adviser to 900 municipal bond transactions totaling over $52 billion last year.

Schwab’s BondSource platform provides plethora of products including municipal bonds, corporates, Certificate of Deposits, Treasuries, agency bonds, and sub-investment grade bonds through trading platforms, bond underwriters and dealers along with Schwab’s own inventory. The platform already has access to nearly 930 new issue offerings, including access to almost 600 new issue municipal deals over the last twelve months ending August 31, 2012.

The bonds, which will be available through Piper Jaffray, would accompany the newly issued municipal bonds that are already presented to Schwab’s clients on its platform through previous existing agreements.

Therefore, considering the credentials of both these companies, it is expected that investors will greatly benefit from the aforementioned alliance. Moreover, this tie-up reflects Schwab’s willingness to make its revenue stream less dependent on interest rates. Low interest rate environment has remained a drag on the company’s revenue, forcing it to waive fees. In the first nine months of 2012, fee waivers jumped nearly 12% from the year-ago period to $445 million.

Moreover, diversifying business reach in terms of both products and location will help Schwab to generate enhanced revenue in the upcoming quarters. As a part of this effort, the company has already announced the launch of certain initiatives, including Schwab Index Advantage and Independent Branch Services, which would help augment revenue going forward, with or without a Fed rate-hike.

Schwab currently retains a Zacks#3 Rank, which translates into short-term Hold rating. We believe that the collaboration with Piper Jaffray will result in strong upward estimate revisions for the stock, thereby aiding it to achieve a better Zacks Rank. Considering the fundamentals, we also maintain a ‘Neutral’ recommendation on the stock.

 

 
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