CHARLES Schwab reported declines in profit, new assets and deposits as it navigated a tumultuous year of interest rate hikes that dented the firm’s balance sheet – a set of results that initially sent its shares tumbling.

Schwab said that net new assets fell 48 per cent to US$66.3 billion in the fourth quarter while net income also dropped by almost half. Bank deposits in the period declined 21 per cent to US$290 billion and the company’s total retail brokerage accounts fell short of analyst estimates at 34.8 million.

Shares in the company fell as much as 7 per cent before paring some of those losses. They traded at US$63 at 12.47 pm in New York, down about 1.7 per cent.

Schwab closed out what was one of the firm’s most turbulent years in its five-decade-plus history, swept up in the regional banking chaos as interest rate hikes eroded the value of its investments. Consumers also pulled their deposits in search of higher-yielding alternatives, compounding those pressures.

“No one at Schwab is kidding themselves that everything is perfect right now,” chief executive officer Walt Bettinger said on Wednesday (Jan 17) during a call discussing earnings. “Perhaps it was the most challenging in my time at Schwab – certainly the most challenging since the bursting of the Internet bubble in 2000.”

Like a number of financial firms, the Westlake, Texas-based brokerage turned to more expensive forms of funding, such as retail certificates of deposit and Federal Home Loan Bank advances, to assist those consumers looking for higher yields.

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On Wednesday, chief financial officer Peter Crawford reiterated that the firm is moving away from those sources, saying that it repaid 18 per cent of peak balances reached in May 2023, “as realignment activity decelerated by almost 80 per cent during the second half of the year, including a seasonal increase in client cash in December”.

Last spring, paper losses on long-dated bonds spooked depositors at some regional banks. Bettinger recently said that his firm and others are weighing shortening the durations of their securities books, helping them avoid similar losses in the future. On Wednesday, Crawford said the firm’s earnings potential should grow as it pays down the higher-cost borrowings and “as we reinvest our securities portfolio at higher market rates than what we currently earn”.

The firm also said it continues to see a path to a net interest margin approaching 3 per cent before the end of 2025, as well as a longer-term goal of a 20 to 30 per cent dividend payout ratio, plus buybacks, it said. BLOOMBERG