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Schwab Profits Fall 18% on COVID-19 Costs, Weaker Net Interest

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Charles Schwab said Wednesday that its net income for the first quarter of 2020 was $795 million, down 18% from a year ago. Revenues weakened 4% from Q1’19 to hit $2.6 billion. 

Earnings per share were $0.58, down 16% from last year and included $0.04 per share for M&A and COVID-19 costs.

Net interest revenue — a big share of Schwab’s total — fell 6% from a year ago to $1.57 billion; asset management and fee revenue grew 10% to $827 million; and trading revenue declined 13% to $188 million.

The Advisory Services unit had assets of about $1.65 trillion, down 3% from last year, while Investor Services had $1.85 trillion, for a year-over-year decline of 2%.

In Q1’20, the brokerage firm spent $37 million on “pending USAA, TD Ameritrade and Wasmer Schroeder transactions.” USAA investors are set to move to the Schwab platform in late May; meanwhile, there’s no word yet from the Justice Department on approval of the TD Ameritrade purchase. 

Schwab also spent about $27 million on responding to the COVID-19 pandemic, including $1,000 “spot bonuses” for employees and other compensation and business continuity expenses.

New Accounts, Falling Interest Revenue

“We’ve been up and running day after day, without significant disruption, as our clients entrusted us with $73.2 billion in core net new assets during the first quarter, up 42% year-over-year and a first-quarter record,” according to CEO Walt Bettinger. 

Schwab clients opened 609,000 new brokerage accounts in Q1’20 — bringing the number of active brokerage accounts to 12.7 million, up 8% from March 2019. The firm said it handled a peak of 4 million trades on March 12, as well as a 217% year-over-year increase in daily average trades in March. 

Still, with the S&P 500 having its worst quarter since 2008, client assets overall ended March at $3.5 trillion, down 2% from a year ago.

“Net interest revenue of $1.6 billion declined 6% year over year, due to pressure across the yield curve accelerating late in the quarter, which outweighed the impact of significantly higher levels of client cash sweep balances,” said CFO Peter Crawford in a statement. 

“Given the rapid accumulation of these balances late in the quarter, we’ve initially placed a substantial amount in excess reserves at the Fed; such balances totaled $58.7 billion at month-end March, up from $18.8 billion at year-end 2019,” Crawford explained. 

Asset management and administration fees of $827 million rose 10% from last year, mainly due to clients’ “sustained utilization of advisory solutions along with increased balances in purchased money funds, which helped offset sharp declines in equity market valuations,” the CFO said.


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