Schwab’s Year In Review: Impressive Year Influenced By Interest Rate Hike And Innovative Products

+0.76%
Upside
72.38
Market
72.93
Trefis
SCHW: Charles Schwab logo
SCHW
Charles Schwab

For Charles Schwab (NYSE:SCHW), it has been an impressive year so far.  With three quarters reported, revenues growth year to date has been nearly 17% and stock is up 26% as we enter the final two weeks of the year. The company has seen a significant growth in its interest earning assets supported by the Fed’s interest rate hikes, both in late 2015 and last week.  Moreover the Fed has signaled three additional hikes next year. Schwab’s focus on both innovating customer-centric financial products and supporting customer investment decisions seems to work well for the company, given the 14% growth in asset management fees. However, with the industry-wide decline in trading and the continuing threat from discount brokerages, the company’s trading revenues have suffered.

Interest Earning Revenues Continue To Boost Top-line Under Fed’s Guidance

We believe Fed’s rate hike in December 2015 influenced 20% surge in Charles Schwab’s interest earning assets during the first half of the year. Additionally, the yield on these assets has gone up by 15 basis points this year. The growth in assets, coupled with the yield increase, has led to 32% jump in the revenue. With both recent and planned rate hikes in 2017,  we expect the segment to continue contributing towards the company’s growth, due to its high asset base and moderate yield on these assets in comparison to competitor brokerages like E-Trade And Ameritrade.

Relevant Articles
  1. Charles Schwab Stock To Top The Consensus In Q3
  2. What To Expect From Charles Schwab Stock?
  3. Charles Schwab Stock To Post Mixed Result In Q2
  4. Charles Schwab Stock Has An 84% Upside Potential To Its Pre-Inflation Peak
  5. Charles Schwab Stock Is Undervalued
  6. What To Expect From Charles Schwab Stock In Q4?

Asset Management Fees Sees Growth With Increased Demand For Financial Advisory And Tech-Advanced Products

Over the past couple of years, the demand for financial expertise has grown among customers. Amid uncertain market conditions, the company has paid special attention to its customers with financial advisers assisting them on an individual basis. Additionally, the company continues to develop innovative financial products to suit its customers. It is the among the top 5 ETF providers in the U.S. With the launch of the Schwab Intelligent Platform in 2015, it was among the first of the established players to enter the robo-advisor industry. With no advisory fee and and enhanced customer support for portfolio management, this segment has attracted a lot of investors, thereby crossing $10 billion in assets under management from this platform alone in just over a year. The revenues from asset management segment has seen over 14% growth year to date.

Trading Volumes Suffered

The decline in revenue per trade and revenue trades has led to over 5% decline in the trading revenues for the brokerage firm. Increased competition from discount brokerages has compelled Charles Schwab to reduce its commissions. The news of Brexit did lead to a surge in trading volumes, but most of the year has seen sluggish growth in trading volume across the U.S. amid unfavourable financial conditions and investors possibly looking for safer investment avenues.

However, with the increased volatility in the markets from the recently concluded US presidential election and improving financial conditions, we expect volume growth for the brokerage, thereby by propelling its trading revenues.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research