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In its monthly market activity report for August 2012, The Charles Schwab Corporation (SCHW - Analyst Report) reported a fall in Daily Average Revenue Trades (DARTs) compared with the prior month. This implies that the company witnessed insufficient trading activity during the month under review.

Sluggish economic recovery, strict regulatory environment and investors’ cautious attitude to invest in the equity markets were the primary reasons behind the fall in DARTs.

Schwab’s net new assets bought by the new and existing clients totaled $6.9 billion, plummeting 89% from August 2011, but increasing 7% from July 2012. Further, total client assets stood at $1.86 trillion, improving 12% compared with August 2011 and 2% compared with July 2012. However, total client daily average trades came in at 375,900, declining 31% from August 2011 and 5% from July 2012.

The company opened 72,000 brokerage accounts in the reported month, climbing 1% from 71,000 reported in August 2011 and by 16% from 62,000 in July 2012. Schwab’s active brokerage accounts totaled 8.724 million, up 7% year over year and almost at par compared with the prior-month.

Moreover, clients’ banking accounts grew 10% year over year and 1% over the prior-month to 838,000. Similarly, the number of corporate retirement plan participants was 1,541 million, improving 6% from August 2011 and remaining almost unchanged compared with the last month.

Peer Performance

Earlier this month, TD Ameritrade Holding Corporation (AMTD - Analyst Report) recorded 37% year-over-year fall in DARTs for the month of July to 303,000. TD Ameritrade reported $461.2 billion in total client assets, up 15% year over year and 3% from the prior month. Moreover, average spread-based balances increased 12% from August 2011 and 2% from July 2012 to $76.0 billion.


Lower trading activities, fluctuating interest rates and sluggish equity markets are expected to continuously impact the company’s financials in the near term. Further, we remain apprehensive about Schwab’s low capital intensity relative to its peers. However, its focus on low-cost capital structure will help it sustain better results in the upcoming quarters.

Schwab currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.

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