Schwab Earnings Top Forecasts but Shares Drop Amid Revenue Miss

NYSE-listed Charles Schwab reported today its second quarter earnings that topped analysts’ forecasts though revenue fell short of expectations following record market swings.

Charles Schwab’s stock dropped 2.2 percent after the San Francisco giant brokerage reported second-quarter earnings of $671 million, or 48 cents a share. That’s down from the $937 million, or 66 cents a share, the financial services firm earned in the year-earlier quarter.

Excluding one-off items, such as acquisition and integration-related costs, the company’s net income posted 54 cents a share, just above the 53-cent estimate of analysts surveyed by FactSet.

Overall, net income for the first half of 2020 plunged 23 percent to $1.46 billion, down from $1.9 billion a year earlier.

Meanwhile, Charles Schwab reported revenue fell 9 percent to $2.45 billion from $2.62 billion in the first quarter and $2.68 billion in the year-earlier quarter. The latest figure compares with the analyst estimate of $2.48 billion.

Charles Schwab attributed part of the revenue decline to a 14 percent drop in net interest revenue, which was offset by a slight increase in asset management and administration fees.

Pressure across the yield curve accelerated late in the second quarter, weighing on trading revenue which also declined 7 percent to $193 million, the discount brokerage said. Trading revenue declined due to the move to zero commissions last year, partially offset by an increase in transactions volumes.

“We grappled with the ongoing health crisis, a contracting U.S. economy, and sustained pressures on interest rates, yet there were some encouraging signs as the quarter progressed, including domestic equity markets recovering to pre-pandemic levels,” said Chief Executive Walt Bettinger.

The volatile market over the first half also saw a big jump in trading volumes, which remained elevated in the second quarter compared with a year ago, though it fell compared with records for trading activity reached in March.

TD Ameritrade merger gets go-ahead

Last month, Charles Schwab has received overwhelming shareholder approval for the $26 billion acquisition of its former rival TD Ameritrade.

Now that the discount brokers are taking their final steps towards integration, the mega-deal is not going on without its critics. According to almost identical disclosures filed by each firm, eight complaints have been filed by purported TD Ameritrade stockholders in federal court seeking to halt the combination with Schwab. The US Justice Department, however, decided not to block the deal on antitrust ground.

Earlier in January, the proposed takeover was hit with an antitrust as some investment advisors voiced concerns the deal would reduce competition and innovation among the companies that serve as custodians to independent advisors. The lawsuit claims the planned merger would also amplify concentration in a business already dominated by only four companies.

(Photo: pxfuel)

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