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Schwab Q3 Profits Drop 22% as Net New Assets Fall

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Charles Schwab reported earnings that beat expectations but fell from year-ago results for the quarter ending Sept. 30, just one week before it wrapped up its $22 billion purchase of former rival TD Ameritrade.

But this quarter saw a sizable drop in a key industry metric for Schwab — net new assets — and continued revenue fallout from low interest rates.

Schwab earned adjusted profits of $749 million, or $0.51 per share, down 22% and 27%, respectively, from the third quarter of 2019. Revenue fell 10% to $2.45 billion. (Future quarters will include TD Ameritrade results.)

CEO Walt Bettinger said that the Schwab Advisor Network referral program “reached a new milestone by crossing the $100 billion mark during the quarter.” The program includes 175 RIA firms nationwide and about 50,000 clients.

Asset Movement

Total client assets jumped year over year by 17% to nearly $4.4 trillion — with RIA-related assets at $2.02 billion and retail investor assets at $2.38 billion.

Net new assets — viewed as a key growth metric in the business — fell 10% overall from a year ago and 63% from the prior quarter to $51.2 billion.

RIAs, though, grew net new assets by 4% from last year and 32% from the earlier quarter to hit $32.8 billion. These results included $8.5 billion of inflows from Schwab’s acquisition of Wasmer, Schroeder & Co.

Retail investor assets, however, weakened 26% from a year ago and 83% from the prior period and totaled $18.9 billion. In the second quarter, $79.9 billion flowed in from the purchase of USAA’s Investment Management Co. and $10.9 billion from a mutual fund clearing services client.

“Throughout the third quarter, the equity markets generally worked their way upwards while both short and long-term interest rates remained under pressure,” Bettinger said in a statement. “Clients entrusted us with $51.2 billion in net new assets, despite seasonal tax outflows in July from a delayed tax filing deadline.”

Other Results

While investors pushed its level of daily active revenue trades up 103% from Q3’19 to 1.46 million in Q3’20, revenue per trade tanked 57% to $1.94.

Its net interest income fell 18% from last year to $1.34 billion, and trading revenue dropped 12% to $181 million. Asset management and administration fee revenue, though, improved 4% to $860 million.

Also, Schwab’s pretax profit margin stood at 36.3% in Q3’20 vs. 45.6% in Q3’19.

“On the expense front, our total outlays rose to $1.6 billion, up 6% year-over-year,” according to Chief Financial Officer Peter Crawford. “Noteworthy contributors included $42 million in acquisition and integration-related costs.”

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