Charles Schwab results beat expectations as deposit flight slows

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The deposit flight at Charles Schwab proved less than feared in the latest quarter, helping the broker and bank beat analysts’ expectations despite reporting a 28 percent drop in profit.

The Texas-based conglomerate reported revenue of $4.7 billion, down 9 percent year-on-year but higher than the $4.6 billion expected by analysts polled by Refinitiv. Adjusted net income of $1.5bn exceeded the $1.3bn expected by analysts.

Deposits fell 7 percent from the previous quarter to $304 billion, and net interest income – the difference between what Schwab earns from lending and investing and what it pays out to depositors – fell 10 percent year over year to $2.3 billion. .

The figures come after Schwab has faced a difficult period after the collapse of Silicon Valley Bank in March fueled concerns about regional lenders.

At the time, the market drew an analogy between Schwab’s business model and SVB’s business model. Both had a large share of low or no interest deposits that were invested in government securities. As interest rates rose, Schwab’s customers began moving their deposits to receive higher returns, and its securities suffered paper losses.

However, Schwab’s issues were not as severe as SVB’s: the majority of deposit money went into its own money market fund, and it was able to use borrowed money to repay depositors instead of selling securities at a loss. Was.

Investors were buoyed by the results and pushed Schwab shares up more than 8 percent in pre-market trading Tuesday morning, though they remain down more than 25 percent since the start of the year.

Chief executive Walter Bettinger said a “fog” of worry about rising interest rates was covering the extraordinary progress we were making as a firm. He told analysts Tuesday that the company expects an additional $500 million in savings, more than double what he estimated, from the full integration of Ameritrade customers that it moved to Schwab’s platform in May.

Chief financial officer Peter Crawford said in a statement that in June there was a “sustained and substantial deceleration in the daily pace of cash outflows compared to previous months”, adding that the group expected to return to cash flow before the end of the year. . ,

Chairman Rick Wurster told analysts that Schwab is on track to maintain its target of 5 to 7 percent annual growth in net new assets.

Still, the pre-tax margin is set to decline sharply year over year to 36.3 percent in 2023, up from 44.6 percent last year. Investors are also worried about how regulatory plans to tighten capital requirements for banks of Schwab’s size will affect business.