Charles Schwab Corp, the discount brokerage pioneer that is expanding into fee-based advisory accounts, said on Thursday that third-quarter profit jumped 17 percent on higher trading commissions and interest revenue.
The San Francisco-based company's net income totaled $376 million, or 28 cents a share, a penny higher than the average analyst estimate in a poll by Thomson Reuters I/B/E/S.
Revenue was boosted by heavy trading in late August as global markets were roiled by fears about the Chinese economy, but falling stock prices curbed client enthusiasm as the quarter ended.
During the week of Aug. 24, Schwab made an average of 514,260 daily trades for clients who paid commissions or bond markups, compared with 294,888 trades the week of Sept. 28. Average daily trades for the quarter rose 13 percent to 304,000, while trading revenue jumped 9 percent to $228 million on slightly lower commission prices.
Prodded by a modest quarterly rise in short-term interest rates, net interest income rose 11 percent to $635 million.
Total revenue of $1.59 billion was up 3 percent, while expenses fell 2 percent to $1 billion, in line with executives' earlier forecasts. Schwab's pretax profit margin soared to 36.5 percent, its highest level since the fourth quarter of 2008.
By comparison, pretax profit margin at Bank of America's global wealth and investment management division, dominated by its Merrill Lynch franchise, was 23 percent in the third quarter.
Profit at Schwab and other retail brokerage firms is tied closely to interest rates, because firms invest clients' cash balances at rates higher than they pay for the cash. As a result, Schwab profit is expected to soar when the Federal Reserve raises rates.
In anticipation of a rate hike, Schwab in the third and fourth quarters is moving about $4.0 billion of cash in money-market funds to its bank, which typically pays clients lower rates than the funds.
Schwab also has been aggressively marketing accounts that charge fees tied to the value of client portfolios as opposed to traditional commission accounts. Retail brokers view fee-based accounts as more stable revenue sources because retail investors curb their trading when markets fall.