Charles Schwab, One Of Nation’s Largest Brokers, Nabs $2.4 Billion In Revenues Despite Commission-Free Trading And Historically Low Interest Rates

Topline

Despite headwinds from a push to commission-free trading announced last October and historically low interest rates, brokerage Charles Schwab reported an earnings beat on Thursday morning, adding to a mixed bag of big bank earnings that have failed to keep markets afloat.

Key Facts

San Francisco-based Charles Schwab reported revenues in line with Wall Street expectations, nabbing roughly $2.4 billion in the quarter–about 10% less than in the same period a year ago.

Net income attributable to shareholders, meanwhile, totaled $698 million, or 51 cents per share, beating analyst estimates of 46 cents per share and increasing slightly quarter to quarter, but still coming in 27% lower than income in the third quarter of 2019.

Schwab’s stock futures were down 1.5% immediately following the announcement, after falling 1.3% on Wednesday; they’re still down roughly 23% for the year.

The firm blamed decreased short- and long-term interest rates for an 18% year-over-year decline in the firm’s bank investment portfolio; it also said that trading volumes remained strong in the quarter, though relevant revenues declined about $20 million due to the firm’s shift to commission-free trading, announced in October 2019.

Financials are among one of the hardest-hit sectors this year, with the S&P 500 Financials Index down nearly 20% year to date, behind only the energy sector, which has tanked almost 50%.

Stock futures in the two broader market indexes—the S&P 500 and the Dow Jones Industrial Average—were down about 1.2% following the announcement–virtually unchanged from early morning losses after a dismal unemployment report.

Crucial Quote 

“Following yet another quarter of strong business fundamentals, we find ourselves at a pivotal moment in Schwab’s history–one made possible by the groundwork we’ve been laying over the course of four-plus decades,” CEO Walt Bettinger said in a statement released alongside earnings. “As a result of our watershed acquisition of TD Ameritrade, we have created a company with tremendous reach.”

Key Background

Schwab completed a massive $22 billion all-stock acquisition of fellow brokerage TD Ameritrade–announced at the end of last year–earlier this month, creating an investment behemoth with roughly $6 trillion in client assets across 28 million brokerage accounts. The firm revealed in September that its pre-acquisition assets had reached a record $4.5 trillion at the end of August, up 21% year over year, but Schwab Chief Financial Officer Peter Crawford also warned that historically low interest rates–which weighed heavy on Wells Fargo’s third quarter–continued to stifle Schwab’s revenues well into the third quarter.

Tangent

Friday concludes a packed week of earnings marked by mixed results from big banks and airlines. JPMorgan Chase and Citigroup kicked off the season on Tuesday with a better-than-expected profit of $9.4 billion and $3.2 billion, respectively, but on Wednesday, Wells Fargo and Bank of America failed to impress investors, and stocks finished the day down for the second day in a row. Morgan Stanley posted a beat on Thursday, nabbing $2.7 billion in third-quarter profits. Ally Financial, State Street and Bank of New York Mellon are among firms slated to report on Friday.

Further Reading

Morgan Stanley Posts $2.7 Billion Third Quarter Profit Thanks To Stocks’ Summer Surge (Forbes)

Stocks Fall Again, Dow Tanks 300 Points As Jobless Claims Reach Highest Levels Since August (Forbes)

Stocks Tick Up After Goldman Earnings Soar, But Key Economic Indicator Shows Consumer Worries (Forbes)

Goldman Sachs Posts $3.5 Billion Earnings, Smashing Wall Street Expectations As Revenues Surge 30% Mid-Pandemic (Forbes)

Bank Of America Posts $4.9 Billion Profit, Down 16% From Last Year As Big Banks Look Towards Recovery (Forbes)

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