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Earnings Results: Schwab misses profit and revenue marks but adds new clients as investors turn to savings accounts and fixed income in rough period for stocks

Charles Schwab Corp. customers turned to more bond and savings account holdings in a tough year for stocks, the online broker said Wednesday.

Schwab’s
SCHW,
-3.43%

stock fell 4% after it missed Wall Street forecasts for fourth-quarter earnings and revenue, while providing insights into how investors behaved in the worst stock market since the Global Financial Crisis.

Schwab’s fourth-quarter net income rose 25% to $1.97 billion, or 97 cents a share, from $1.58 billion, or 76 cents a share in the year-ago quarter.

Adjusted earnings in the latest quarter totaled $1.07 a share, short of the forecast of $1.09 a share by analysts surveyed by FactSet.

Schwab’s fourth-quarter revenue rose 17% to just under $5.5 billion, below the Wall Street target of $5.55 billion.

CFRA analyst Michael Elliott reiterated a strong buy on Schwab and kept his price target of $94 a share.

“Strong net interest revenue growth was partially offset by weaker asset management and admin fees and lower trading revenues as challenging equity markets dampened investor enthusiasm,” Elliott said in a research note. “Despite market headwinds, SCHW was able to continue driving strong operational performance.”

In the face of rocky financial markets, Schwab said it added 4 million new accounts in 2022, bringing its total to 34 million. Total client assets ended the year at $7.05 trillion, down from $8.14 trillion at the end of 2021.

Schwab also gathered $128 billion in net new assets in the fourth quarter to bring its annualized organic growth rate to about 8%. 

Client allocations to fixed income increased 66% during the fourth quarter against the end of 2021, as investors took aim at self-directed tools and income-focused products such as tax-exempt and taxable bonds.

“As rates rose from the ultra-low levels observed during the most recent period of the Federal Reserve’s zero interest-rate policy, clients allocated a growing portion of their assets to higher yielding cash and fixed income alternatives,” CFO Peter Crawford said in a prepared statement.

 Schwab said its balance sheet shrank 17% to $115 billion at the end of 2022 compared to 2021.

The company said it increased its liquidity by limiting new portfolio investments to help build available cash and used a “limited amount of short-term funding sources” including Federal Home Loan Bank Advances and retail certificates of deposit.

Also Read: Schwab total client assets fall 8% from year-ago but rise from previous month

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