Charles Schwab just posted mixed results for the second quarter, prompting some analysts to suggest the news could signal future challenges — at least for a time.
The firm’s earnings “will be depressed by the interest-rate environment and messier than normal due to acquisitions in the near to medium term,” said Michael Wong, Morningstar’s director of equity research, financial services, in a recent note.
Still, Schwab’s “long-term competitive position and value will be enhanced by its more recent acquisition activity,” which includes adding USAA’s investment unit in Q2’20 and TD Ameritrade by year-end, explained Wong, CFA and CPA.
The company plans to review its recent results in more detail on an investor call early Tuesday.
The brokerage firm’s adjusted net income fell 21% from last year to $742 million, while its adjusted earnings dropped 19% to $0.54 a share; the adjustments included charges of about $0.06 tied to recent acquisitions.
The brokerage firm had revenue of $2.45 billion, down 9% from last year, despite the fact that its daily average trades soared 126% to about 1.62 million from 720,000.
However, the average revenue per trade dropped by nearly 60% to $1.89 from $4.59. The firm eliminated commissions for most online trades in October.
Its net interest income — which accounts for 57% of its total revenue — dropped 14% year over year to about $1.4 billion. (Bank of America’s wealth and investment unit had the same level of NII in Q2’20, down 15% from Q2’19).
“Both short- and long-term interest rates are at multi-year lows and are likely to remain low for years, in our view,” Wong pointed out.
Schwab’s asset management and administrative fees rose 2% to $801 million, while trading revenue declined 7% to $193 million.
Overall, its pretax margin stood at 36.2% in Q2’20 vs. 46.1% in Q2’19. The company has some 21,800 employees, up from 20,500 a year ago.