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SCHW Charles Schwab Corporation

72.22
-0.16 (-0.22%)
29 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type
Charles Schwab Corporation NYSE:SCHW NYSE Common Stock
  Price Change % Change Share Price High Price Low Price Open Price Shares Traded Last Trade
  -0.16 -0.22% 72.22 72.60 71.70 72.40 6,864,344 00:00:00

Schwab's Growing Cash Absorbs Interest-Rate Impact

15/10/2019 7:19pm

Dow Jones News


Charles Schwab (NYSE:SCHW)
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From Mar 2019 to Mar 2024

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By Lisa Beilfuss 

Charles Schwab Corp. reported record third-quarter earnings that topped expectations, as growing cash balances helped the e-broker offset the impact of falling interest rates.

During the three months ended Sept. 30, Schwab earned 70 cents a share, up from 65 cents a year earlier. Revenue increased 5% to $2.71 billion. Analysts expected Schwab to report 64 cents a share on $2.64 billion in revenue.

A darkening economic outlook has weighed on e-brokers this year, and the recent decisions to scrap trading commissions sent their stocks reeling in recent weeks. Investors cheered Schwab's results Tuesday, sending its stock up 5.4%. Shares in rivals TD Ameritrade Holding Corp. and E*Trade Financial Corp. also rose, gaining 3% and 2%, respectively.

In response to tougher economic conditions, Schwab during the quarter cut 3% of its workforce.

Schwab's third quarter highlights its resilience so far in the face of declining interest rates. The Federal Reserve cut rates twice during the period, pinching revenue at banks that profit from lending and investing client cash. Schwab and other e-brokers make a significant portion of their profits by sweeping cash daily from customers' brokerage accounts into the firms' banking arms. For Schwab, net interest revenue made up 60% of overall revenue during the September quarter.

"The results highlight that [the e-brokers] have a couple of levers at their disposal," making it easier to absorb at least the first couple of interest rate cuts, said Devin Ryan, a brokerage analyst at JMP Securities LLC.

One such lever is in rising cash balances, which help make up for less lucrative yields on investments and loans during the quarter. Prompted by growing concerns over the economic outlook, clients moved a bigger share of their portfolios to cash. As a percentage of total client assets, cash rose to 11.4% -- the highest since February -- as customers pared equity holdings.

"The pendulum still has more room to swing back," Mr. Ryan said of clients' shift from investments to cash.

At the same time, Schwab continued to attract new clients who helped boost cash piles. Net new assets rose 7% from a year earlier to $56.6 billion, and the number of active brokerage accounts rose 6%. Assets in Schwab's digital advisory products, meanwhile, climbed 20%. For some clients, robo advice is free of management fees if the client agrees to keep a relatively high portion of their portfolio in cash.

Schwab's ability to gather new assets and grow cash balances, while continuing to pay little on cash, helps alleviate concerns over the coming loss of commission revenue. Trading revenue made up about 6% of total revenue during the period, the last before online commissions for stocks fell to zero.

Rival E*Trade will post its quarterly results later this week, while TD Ameritrade reports early next week.

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

 

(END) Dow Jones Newswires

October 15, 2019 14:04 ET (18:04 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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