🧐 ProPicks AI October update is out now! See which stocks made the listPick Stocks with AI

Charles Schwab reports 9% fall in second-quarter revenue as higher rates bite

Published 07/18/2023, 09:30 AM
© Reuters.
SCHW
-

Investing.com -- Charles Schwab (NYSE:SCHW) has reported a 9% annual drop in second-quarter revenue, as the U.S. brokerage giant was forced to rely on more expensive funding sources to bolster its cash flow due to economic uncertainty stemming from an unprecedented string of Federal Reserve interest rate hikes.

The Texas-based group had previously guided for a decline in revenue of between 10% to 11%, citing a slip in net interest margin and weaker trading activity.

Shares in the stock surged by over 7% in premarket U.S. trading on Tuesday.

Investors have been keeping a close eye on net interest margin, the difference between what a bank or financial institution makes from lending and pays for deposits, as the quarterly earnings season gets underway. The Fed has embarked on a long-standing policy tightening campaign aimed at cooling red-hot inflation, and further increases could weigh on Schwab's returns, analysts have warned.

Schwab chief financial officer Peter Crawford said net interest margin dipped by 32 basis points sequentially to 1.87% as the company dealt with "the incorporation of higher cost liabilities."

Crawford added that while recent results have been "negatively influenced by a number of temporary factors," Schwab remains "extremely well-positioned heading into the years to come."

Bank deposits in the three-month period slipped 31% compared to the corresponding timeframe last year to $304.4 billion, but still topped Bloomberg consensus estimates of $298.37B.

Schwab saw a boom in cash deposits during the pandemic, but this rush subsided as customers decided to take advantage of elevated rates and move their funds into higher-yielding accounts like money market funds. The investment group, which has a banking license, also found itself exposed to the turmoil that rocked the banking sector earlier this year, with concerns particularly surrounding paper losses on its bond holdings.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.