Shares of Charles Schwab Corp.’s rallied 12.2% today to $66 as of noon despite a 7% decline in bank deposits in the second quarter from the prior period as the firm responded to the worst US banking crisis since 2008. Investors apparently reasoned that the lion's share of the bank depost outflow was in the rearview mirror.
Speaking on CNBC this morning, Schwab CEO Walt Bettinger also said the discount brokerage firm's merger with TD Ameritrade, the biggest brokerage merger in history, was proceeded smoothly. Last November, Bettinger had warned advisors attending Schwab Impact in Denver to expect some short-term hiccups and speedbumps during the 2023 integration of the two firms' back office systems.
Customer deposits dropped to $304.4 billion as of June 30, the Westlake, Texas-based brokerage said Tuesday in a statement. That beat the average estimate of $298.4 billion from analysts surveyed by Bloomberg.
Deposits were down 31% from a year earlier.
“While anticipated client cash realignment, along with net equity buying during June, pushed cash levels lower, we observed a continued and substantial deceleration in the daily pace of cash outflows versus prior months,” Chief Financial Officer Peter Crawford said in the statement. “The continuation of this trend through the end of the quarter further strengthens our conviction that this realignment activity will inflect before the end of 2023, unlocking growth in client cash held on the balance sheet.”
Schwab has been facing pressure from investors, particularly since March when the collapse of several midsize US lenders focused attention on unrealized losses from securities held on bank balance sheets. The company operates both a brokerage and one of the country’s largest banks.
The Federal Reserve’s interest rate hikes over the past year have pressured the banking arm, a pivotal source of revenue for the company. Higher rates encouraged some Schwab clients to move their money from the bank to other investment products, including money-market funds, in a process known as “cash sorting.”
“While recent results have been negatively influenced by a number of temporary factors, we remain extremely well-positioned heading into the years to come,” Crawford added.
Schwab shares have declined 30% this year compared with a 1% gain in the S&P 500 Financials Index.
Adjusted earnings per share were 75 cents, four cents more than the average estimate of analysts in a Bloomberg survey. Revenue totaled $4.7 billion, compared with Wall Street’s $4.6 billion estimate.
The firm gathered $52 billion in core net new assets during the quarter, bringing year-to-date asset gathering to more than $180 billion.
This article was provided by Bloomberg News. FA staff contributed to it.