Charles Schwab Corp.'s stock surged 2.9% to a near 15-year high in midday trade Friday, after Goldman Sachs upgraded the discount broker on the belief that the earnings outlook is underappreciated given the potential for deposit growth in an environment of rising interest rate. A big jump in Treasury yields, after a strong May jobs report, also helped boost the stock. Goldman analyst Conor Fitzgerald raised his rating to buy from neutral. He said the fact that Schwab has identified $75 billion worth of customer assets it can sweep in its banking business could "meaningfully" add to earnings. A rising rate environment tends to benefit banks, because it allows them to earn a higher spread between what they pay and receive in interest. "[Schwab's] ability to bring deposits on balance sheet is...one of the most virtuous cycles in banking," Fitzgerald wrote in a note to clients. The more money it earns from sweeping assets into bank accounts, the more money it earns, which in turn allows for more deposits to be brought on balance sheet. The stock, which is on track to close at the highest level since Nov. 9, 2000, has rallied 9.9% year to date, while the S&P 500 has gained 1.7%.
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