Charles Schwab Corp. office building in New York. (Photo: Victor J. Blue/Bloomberg)
Charles Schwab continues to see higher assets but cautions that low interest rates are likely to take a toll on third-quarter results.
While total client assets reached almost $4.5 trillion on Aug. 31 — up 21% from a year ago and 5% from July 31, the “continued compression of interest rates has been pressuring investment yields,” Chief Financial Officer Peter Crawford said Tuesday.
The executive explained that, although the brokerage firm has been restructuring its investment portfolio in recent years to boost its allocations to “less-prepayable securities, the sharp reduction in long-term rates has led to an acceleration of prepayment activity” in the mortgage-backed securities it owns.
“These dynamics are pushing our third-quarter net interest margin into the upper 130s basis point range,” Crawford added, “and therefore our third-quarter total net revenues are running slightly lower than the company’s second-quarter results.”
In the quarter ended June 30, Schwab had net interest income, or NII, of $1.4 billion, down 14% from the year-ago period; NII accounted for 56% of total revenue, which was $2.5 billion.
Its shares fell 2.5% to $34.85 in mid-afternoon trading Tuesday.
The brokerage firm is set to merge with former rival TD Ameritrade by year-end. It launched a free financial planning tool for DIY investors in August.
Core net new assets in August were $20 billion, and net new assets (excluding those tied to mutual fund clearing) were $19.3 billion.
NNA in July were about $11.2 billion, $24.6 billion in June and $97.5 billion in May.
In the second quarter, net new assets into the RIA business were $24.7 billion vs. $22 billion in the retail DIY investor business.
In August, assets receiving ongoing advisor services totaled $1.9 trillion for the RIA segment and $367 for the investor segment.
Client cash as a percentage of assets was 12.5% in August 2020 vs. 11.3% in August 2019 and 13% in July 2020.
“Thus far in the third quarter, equity market returns have been quite strong and client trading activity very robust relative to prior years,” according to the CFO.
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