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Tags: client | assets | Schwab | earnings

Schwab's Earnings Beat Expectations; Client Assets Jump

Wednesday, 16 July 2014 02:39 PM EDT

Charles Schwab Corp.'s second-quarter revenue and profit grew at double-digit rates, slightly exceeding Wall Street expectations.

Once known as a pioneering discount broker for self-directed investors, the San Francisco-based company now emphasizes its full-service and advisory capabilities for investors offered through branches and independent investment advisers.

The shift helped Schwab amass $2.4 trillion of client assets as of June 30, the highest in its history and up 17 percent from a year ago. The total surpassed the record $2 trillion of assets that Merrill Lynch Wealth Management, once the world's biggest retail broker, said it reached during the second quarter.

"Many of our clients are at a stage where they have accumulated significant asset levels, they are increasingly looking for professional help and they expect Schwab to be just as proficient in serving their current needs as we are in serving clients at other points in their investing lives," Chief Executive Walt Bettinger said in a statement.

Schwab's second-quarter net income of $324 million was up 27 percent from a year ago, or up 28 percent on a per-share basis to 23 cents. Its revenue of $1.48 billion climbed 11 percent.

Analysts had forecast earnings per share of 22 cents and revenue of $1.47 billion, according to Thomson Reuters I/B/E/S.

They credited the higher results to a jump in profitable margin lending, declines in low-yielding cash balances and better expense control.

"Relative to our expectations, (Schwab) reported higher revenues and lower expenses," Alex Kramm, an analyst at UBS, wrote in a note to investors.

Schwab additionally transferred $7 million from a reserve for potential loan losses at its bank unit to its bottom line, a positive signal, and earned more from investing client cash for its own benefit than it had forecast. Its 1.65 percent interest margin in the quarter, the difference between what it pays for client deposits and earns on the cash, beat the company's own forecast of 1.6 percent.

New accounts opened during the second quarter fell 6 percent from the first quarter to 242,000, but total active brokerage accounts rose 3 percent to 9.3 million.

Schwab's return on equity rose to 12 percent from 10 percent a year ago, and its pretax profit margin, a measure of how its expense growth contrasts with revenue growth, hit 35.3 percent, up from 30.8 percent a year ago. The profit margin was Schwab's best since 2008, according to BMO Capital Markets analyst David Chiaverini.

Shares of Schwab were down 1 cent to $27.42 in afternoon trading. Some investors are concerned the company's better-than-expected profit margin might induce the company to ramp up spending in coming quarters, said one analyst who spoke on condition of anonymity.

© 2023 Thomson/Reuters. All rights reserved.

Charles Schwab Corp.'s second-quarter revenue and profit grew at double-digit rates, slightly exceeding Wall Street expectations.
client, assets, Schwab, earnings
Wednesday, 16 July 2014 02:39 PM
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