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Schwab-TD Ameritrade Deal ‘on Track’: CEO Bettinger

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Charles Schwab executives are upbeat about its pending purchase of TD Ameritrade and about its business overall, despite expected declines in its net interest margin and pretax margin this year.

“All three [acquisitions] remain on track,” said CEO Walt Bettinger on a call with investors and analysts Tuesday, referring to deals with TD Ameritrade, USAA Investment Management and Wasmer Schroeder.

As the Department of Justice continues its “responsible and thorough review” of the $26 billion TD transaction, “we remain optimistic,” Bettinger said.

In late March, the DOJ asked firms involved in mergers and acquisitions to add 30 days to their “deal timing agreements,” saying it needed extra time to check documents; it also postponed depositions and moved meetings to phone and video “whenever possible.”

When asked about RIA business and advisor movement, Bettinger said Schwab “doesn’t expect a slowdown” after its “strong” first-quarter performance.

“The RIA community continues to have success,” especially those advisors with less than $300 million, he added, who now have “the highest organic growth rate.” 

In terms of a possible slowdown during the time when TD Ameritrade advisors and their accounts are being moved over to Schwab, assuming the deal is approved, “that isn’t likely to unfold,” Bettinger said. “We have deep, positive relationships with the vast, vast, vast majority of RIAs we work with — as does TD Ameritrade.

“We do not anticipate a meaningful change in this business as that date approaches,” the CEO said, though he didn’t give a rough estimate of when that would be.

Latest Quarterly Results

Charles Schwab said April 15 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.

In the first quarter, Schwab’s net interest revenue fell 6% from a year ago to $1.57 billion; asset management and fee revenue grew 10% to $827 million (including Schwab Managed and Intelligent Portfolios, as well as other “advice solutions”); and trading revenue dropped 13% to $188 million.

As for assets, they now total $3.5 trillion, with about $1.85 trillion in investor accounts and $1.65 trillion in those linked to RIA clients.

Flows in Q1’20 were $73.2 billion, with nearly $39 billion moving into Advisor Services, up 68% year over year, and more than $35 billion being added to Investor Services, up 21% from a year ago.

Schwab’s Broader Outlook

Layoffs are not likely or anticipated due to the Covid-19 pandemic, according to Chief Financial Officer Peter Crawford, who gave an overview of the firm’s 2020 performance forecast. Schwab had 20,200 employees as of March 31.

Revenue — which was down 4% to about $2.6 billion in the first quarter — could decline between 4% and 7% this year vs. 2019, assuming that the federal funds rate stays at 0-0.25%, the CFO says. Meanwhile, expenses likely will rise about 5%.

During Tuesday’s update, Schwab said the expected net interest margin in 2020 should average 1.7% — down from 2.14% in Q1’20 and 2.46% in Q1’19.

This is likely to hit pretax profits (or margins), which it anticipates will be about 38% in 2020. Margins were 45.2% on average in 2019 and 40% in Q1’20. 

Other estimates shared by the firm include its outlook for the 10-year Treasury to have an average rate of 1.04% and for the S&P 500 to end the year up 6.5% from 2,846 (on April 15); that would put it at 3,030.  

It also expects its daily-average-trade figure to be up 45% from 2019. That daily figure was about 750,000 last year. The firm made $1.97 per trade in Q1’20 vs. $4.04 in 2019.  

“For our long-term strategy, nothing has really changed … ,” Bettinger said at the start of the call, “though the world likely has … forever.”


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