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July 20, 2020 at 04:51 PM
(Photo: Bloomberg)
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.
Q2 Performance
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.
