Schwab Soars on Earnings Beat as Firm Pays Down Costly Debt
(Bloomberg) -- Charles Schwab Corp. shares jumped after reporting earnings per share that topped analyst estimates and curbing some of its expensive debt — a sign the firm has moved past a bout of turbulence last year.
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The company said adjusted earnings per share for the third quarter were 77 cents, beating analyst forecasts. Adjusted net income for the period was $1.5 billion, up slightly on the prior year.
Schwab’s client transactional cash sweep — which took a hit when customers shuffled funds in search of better-yielding options — climbed $9.2 billion sequentially, helping the firm reduce costly bank supplemental funding by $8.9 billion, it said in a statement Tuesday.
“Some might refer to it as an inflection point,” though time will tell, Schwab’s outgoing Chief Executive Officer Walt Bettinger said on a Tuesday call with analysts.
Shares of the firm were up 7.45% at 10:10 a.m. in New York.
Schwab is emerging from what it called one of its most challenging years in decades last year, as steep interest rate hikes took their toll on its businesses. Customers had yanked their deposits from Schwab’s bank in search of higher-yielding alternatives, causing the company to seek out more expensive funding sources. Higher rates also saddled the company with paper losses as the value of its bond investments took major hits.
Executives have since said the worst of those woes have subsided as it vowed to shrink the bank’s balance sheet over time and prioritize paying down costlier debts.
One change Bettinger had proposed last year was shortening the duration of its securities portfolio. On Tuesday, Verdeschi said that isn’t something the firm is currently pursuing.
Earlier this month, Schwab named Rick Wurster as the firm’s next CEO, teeing him up to take over the retail brokerage business from long-time leader Bettinger who retires at the end of the year. Wurster’s appointment followed other leadership shuffles, including the appointment of Mike Verdeschi — a Citigroup Inc. veteran — to take over as chief financial officer from Peter Crawford.
“Third quarter net asset gathering of over $95 billion pushed year-to-date core net new assets to $252 billion – up 10% versus 2023 year-to-date,” Bettinger said in the statement.
The firm reported $90.8 billion of total net new assets in the quarter, an 88% increase on the same period a year ago. Client transactional sweep cash balances finished September at $384 billion, the firm said.
Schwab said it expects its full-year 2024 revenue to grow by 2% to 3% on the prior year. While the company predicts net interest margin to expand through next year, it may not hit the 3% target that was previously predicted given the lower rate environment, Verdeschi said on a call with analysts.
(Updates with CEO comments in fourth paragraph and updated company outlook in final paragraph.)
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