Schwab Beats Third Quarter Earnings Expectations Amidst Doubt From Analysts

Andrew Wagner

Charles Schwab Corporation reports third-quarter earnings of $2.71 billion beating analyst expectations.

Charles Schwab Corporation reported third-quarter earnings that beat expectations, according to The Wall Street Journal. The earnings performance was attributed to growing cash balances that helped the broker offset the impact of falling interest rates.

Schwab reported earnings per share (EPS) of 70 cents beating analyst expectations by 6 cents and increasing EPS by 5 cents compared to a year ago. Revenue was reported at $2.71 billion compared to the expected $2.64 billion and represented a 5 percent increase.

The economic outlook has not been good recently and has had a negative effect on e-brokers such as Schwab this year. Furthermore, the company decided to eradicate trading commissions leading to a huge sell-off on their stock over fears of decreased profits. Trading revenue made up 6 percent of total revenue during the period. After Schwab released earnings Tuesday, the stock was up 5.4 percent on the day.

The Federal Reserve cut rates twice so far this year, hurting revenue from banks that profit from lending and investing client cash. Schwab makes a decent amount of its profit by transferring cash daily from customers' brokerage accounts into banks. Schwab's net interest revenue was 60 percent of total revenue during the third quarter.

Schwab has also attracted new clients, which helped increase the company's cash balance. New assets rose 7 percent to $56.6 billion, and the number of active brokerage accounts rose 6 percent.

By beating their earnings expectations Schwab demonstrated that the company is adjusting to the constantly changing and innovative market for e-brokers in a healthy way.

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Economics, Finance and Investing