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Schwab Stock Down on Bleak Q3 Outlook; August Metrics Rise

Zacks Equity Research

Shares of Charles Schwab SCHW lost 2.7% yesterday after the company announced that its third-quarter total net revenues “are running slightly lower” than the previous quarter. This is because the sharp reduction in long-term rates has resulted in an acceleration of prepayment activity in the mortgage-backed securities held within the company’s investment portfolio.

Concurrently, Schwab announced its monthly activity report for August 2020. It reported record total client assets of $4.49 trillion, up 5% from July 2020 and 21% from August 2019.

Client assets receiving ongoing advisory services were $2.27 trillion, up 4% from the prior month and 16% year over year. Net new assets increased 79% sequentially and 1% year over year to $20 billion.

Schwab’s average interest earning assets were $384.7 billion at the end of August 2020, up 1% from July 2020 and 45% from August 2019. The company had 202,000 new brokerage accounts in the reported month. This was down 2% from the prior month but up 60% from August 2019.

Schwab’s active brokerage accounts totaled 14.31 million at August-end, up 1% sequentially and 18% from the year-ago month. Further, clients’ banking accounts were 1.49 million, rising 1% from July 2020 and 10% from August 2019. The number of retirement plan participants was 1.72 million, almost at par with the prior-month level as well as from the year-ago level.

Driven by heightened volatility and robust trading activities resulting from the coronavirus outbreak, Schwab continues to record impressive growth in assets. Amid the Federal Reserve’s accommodative monetary policy, the company’s financials are expected to get support from inorganic growth efforts.

Shares of the company have lost 5.2% over the past three months against a rise of 2.6% recorded by the industry.

Currently, Schwab carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Brokers

E*TRADE Financial ETFC reported a substantial year-over-year rise in Daily Average Revenue Trades (DARTs) for August 2020. The company’s DARTs came in at 1,037,532, which jumped 256% from the previous year. Notably, derivatives comprised 28% of DARTs for the reported month.

Interactive Brokers Group’s IBKR Electronic Brokerage segment reported a substantial surge in DARTs on a year-over-year basis in August 2020. Total client DARTs were 1,749,000, surging 88% from August 2019 but declining 3% from July 2020.

LPL Financial Holdings Inc.’s LPLA total brokerage and advisory assets of nearly $823 billion at August 2020-end grew 3.9% from the prior month and 15.6% year over year. Of the total assets, brokerage assets were $412.2 billion and advisory assets totaled $410.4 billion.

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Interactive Brokers Group, Inc. (IBKR) : Free Stock Analysis Report
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The Charles Schwab Corporation (SCHW) : Free Stock Analysis Report
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