Charles Schwab revenue misses estimates even as client assets climb

[NEW YORK] Charles Schwab reported first-quarter revenue that slightly missed estimates even as the brokerage continued to attract the wealth of retail investors amid geopolitical uncertainty.

First-quarter net revenue of US$6.48 billion fell short of analyst expectations of US$6.51 billion. Net interest margin, a key measure of profitability for Schwab’s bank, came in at 2.88 per cent for the first three months of the year, while analysts had forecast 2.94 per cent.

Schwab shares slipped 3.7 per cent at 9.44 am in New York, and are down 3.5 per cent this year.

Still, total net new assets were US$139.9 billion, up 5.7 per cent from a year earlier and higher than the US$123.5 billion Wall Street analysts estimated. Net income totalled US$2.48 billion, just beating estimates of US$2.46 billion.

“Schwab’s diversified model delivered record results within an increasingly uncertain macroeconomic environment,” chief financial officer Mike Verdeschi said on Thursday (Apr 16).

Schwab is now expecting higher full-year earnings than the US$5.70 to US$5.80 a share that was forecast in January, Verdeschi said on a conference call with analysts on Thursday.

The war in Iran roiled markets during the quarter, with some retail investors taking advantage of the volatility. Schwab reported a 39 per cent increase in daily average trades in March compared with a year earlier. Some retail clients are trading more frequently, in smaller amounts and holding those positions for shorter durations, given the ongoing geopolitical uncertainty, CEO Rick Wurster said.

In addition to the Middle East conflict, improvements to artificial intelligence models sparked concerns about threats to brokerages, including Schwab, during the first quarter. Wurster, who became CEO at the beginning of last year, said in February that Schwab is poised to take advantage of what AI has to offer rather than sitting by as the technology potentially forces out financial advisers.

“This is the same story from 10 years ago, when robo-advice was going to displace the adviser community and pressure fees,” Wurster said at the time.

SEE ALSO

Charles Schwab expands 24-hour trading to all its retail clients

Charles Schwab’s fourth-quarter profit soars on higher asset management fees

Charles Schwab eyes spot crypto trading once regulations change

In March, Schwab introduced teen brokerage accounts, which are joint accounts for parents and their kids ages 13 to 17. Schwab is targeting younger would-be investors following a surge in retail investing that began during the pandemic, when people were stuck at home at their computers. The products are a way for Schwab to differentiate itself from competitors and their “more gambling-oriented” messaging, Wurster said on the Thursday call.

This week, the US Securities and Exchange Commission finalised a rule that would apply sweeping changes to a restriction on day-trading activity, a likely boon for brokerages such as Schwab down the line.

Schwab will also allow its customers to buy, sell and hold cryptocurrencies “in the coming weeks”, Wurster said. BLOOMBERG