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Schwab (SCHW) Offers Q3 View, August Core Net New Assets Rise

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Charles Schwab (SCHW - Free Report) has provided upbeat third-quarter 2022 revenue guidance. Given the “ongoing success with clients” and a robust net interest margin, the company projects the top line in the quarter to grow 18-19% on a year-over-year basis.

Further, SCHW came up with information related to its increased capital levels. The company’s chief financial officer, Peter Crawford, said, “As clients move some of their cash to purchased money funds and fixed income, it increases our capital levels – freeing up capital which we can return to stockholders through higher common dividends, preferred redemptions, and/or stock buybacks.”

Driven by this positive development, management has decided to lower its Tier 1 Leverage ratio target range to 6.50%-6.75% from the prior 6.75%-7.00% range. This will support Schwab’s capital deployment actions, which management intends to discuss next month along with their Fall Business Update.

Additionally, SCHW released its monthly activity report for August 2022. Core net new assets were $43.3 billion in the reported month, jumping 37% sequentially but falling 16% year over year.

Total client assets were $7.1 trillion, down 2% from July 2022 and 9% from August 2021. Also, client assets receiving ongoing advisory services were $3.65 trillion, down 2% from the prior month and 6% year over year.

Schwab’s average interest-earning assets of $586.1 billion declined 3% from July 2022 but were up 6% year over year. Average margin balances were $72.9 billion, increasing 1% from the previous month but falling 10% on a year-over-year basis. Average bank deposit account balances totaled $148.4 billion, down 4% sequentially and 2% from August 2021.

Schwab opened 332,000 new brokerage accounts in August 2022, rising 19% sequentially but decreasing 17% from the year-earlier month.

Schwab’s active brokerage accounts totaled 34 million at the end of August 2022, which remained stable on a sequential basis and rose 5% from the year-ago month. Clients’ banking accounts were 1.69 million, up 1% sequentially and 6% from August 2021. The number of corporate retirement plan participants was up 1% from the prior-month level and 4% year over year to 2.29 million.

Schwab’s inorganic growth efforts have reinforced the company’s position as a leading brokerage player and are expected to be accretive to earnings. By offering commission-free trading, the company has witnessed a rise in client assets and brokerage accounts, which is improving its market share.

Over the past three months, shares of Schwab have rallied 21%, outperforming the 17.8% rise of the industry.

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Currently, Schwab carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

A couple of other brokerage firms that come out with monthly data are Interactive Brokers Group (IBKR - Free Report) and LPL Financial Holdings Inc. (LPLA - Free Report) .

Interactive Brokers’ Electronic Brokerage segment announced performance metrics for July 2022. The segment (dealing with the clearance and settlement of trades for individual and institutional clients globally) reported a sequential rise in Daily Average Revenue Trades (DARTs).

Total client DARTs for the month were 1,968,000, up 8% from July 2022 but down 9% from August 2021. On an annualized basis, IBKR recorded Cleared Average DARTs per customer account of 222. The metric grew 6% sequentially but plunged 33% from the prior-year period.

LPL Financial is likely to come out with its monthly activity report in the coming days.


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