Trade Volumes Decline, Asset Bases Rises For Charles Schwab In April
Brokerage firm Charles Schwab (NYSE:SCHW) witnessed a strong start to the year, with total daily trades standing at nearly 580,000 through the March quarter. Trade volumes were about 5% higher than the comparable prior year period and 5% higher than the previous quarter. However, volumes fell to about 515,000 trades per day in April, a 4% year-on-year decline. Schwab is one of the largest brokerage firms in the U.S. with over 9.55 million active brokerage accounts on its platform, and total client assets of almost $2.55 trillion. The brokerage added over $200 billion worth of client assets last year and has kept up the momentum in 2015 thus far. Below we take a look at some of Schwab’s key trading and operating metrics for April and our forecasts for them.
We have a $25 price estimate for the company’s stock, which is almost 15% lower than the current market price. Schwab’s stock price has risen by over 20% in the last one year.
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Trading Activity Subdued After Surge In Q1
Charles Schwab observed an average of about 328,000 daily average revenues trades (DARTs) per day in January, which has since declined to 317,000 revenue trades per day in February, 291,000 trades per day in March and subsequently to 277,000 trades per day in April. Schwab DARTs currently stand at just over 270,000 in Q2’15 thus far, which is roughly flat over the comparable prior year period. [1] The brokerage ended April with 9.55 million active trading accounts on its platform – up from 9.39 million at the end of December 2014. We forecast Schwab to add nearly 300,000 net new accounts through 2015.
Asset Management Fees
Schwab added over 80,000 gross new accounts every month in 2014, maintaining the trend seen over the last few years. The brokerage has kept up the trend in 2015 and has added 385,000 gross new accounts from January through April. As a result, Schwab’s total client assets under management stood at $2.55 trillion at the end of April, up from $2.46 trillion at the end of 2014. [2] We forecast Schwab’s total client assets to rise to $2.7 trillion by the end of the year, and over $4 trillion by the end of the decade.
The yield on total client assets under management declined from 0.21% in 2008 to 0.10% in 2013. However, the trend changed in 2014, with the yield on these assets staying flat over the previous year at 0.11%. Despite roughly flat yields over the previous year, Schwab’s asset management fees grew by almost 10% to $2.5 billion in 2014 – mainly due to the growth in the total assets under management. We expect the yield to stay at around 0.11% in 2015 and subsequently increase to over 0.15% through the end of our forecast period.
Net Interest Revenues
Schwab’s total interest on deposits, loans and securities increased at a CAGR of 19% from 2009 to 2014. However, the growth in net interest-bearing assets was lower than previous years as the company could only manage a 7% growth in total interest earning assets including deposits, loans and securities. Schwab ended the year at an average interest-bearing asset balance of just over $138 billion. The average balance in 2015 thus far has been significantly higher than the 2014 average at about $158 billion. [2] We forecast Schwab’s total interest-earning assets to end the current year at an average balance of just over $152 billion, and subsequently expect average interest-earning assets to grow at 10% annually for the next few years.
The net interest yield on deposits, securities and loans witnessed a steady decline from 4.61% in 2007 to 1.52% in 2013. The trend reversed in 2014, as the yield picked up to about 1.64%. The decline in the last few years can be attributed to Fed policies such as the quantitative easing program. However, the yield on these assets started increasing from Q1 2014. We currently forecast Schwab to end the year at an average implied yield of over 1.8% for the full year.
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- Charles Schwab Corporation Recent Client Trading Activity Report, Charles Schwab Investor Relations, May 2015 [↩]
- Schwab Monthly Metrics April, Charles Schwab Investor Relations, May 2015 [↩] [↩]