Countdown

Anonymous · 2023-10-16T02:21:37Z

To earnings, and either news of layoffs, or no news at all.

Co-Chairman and CEO Walt Bettinger stated, “Against a very challenging economic and geopolitical backdrop, investors continued turning to Schwab as a trusted partner and a wealth management leader. It is truly humbling to see our clients award us with near-record Client Promoter Scores and allow us the privilege to help them move toward their financial goals – particularly during a period where the U.S. government narrowly avoided a shutdown, major equity markets posted a quarterly loss, and long-term interest rates touched levels not seen in many years. Third parties also continue to recognize the firm, with Investor’s Business Daily naming us one of its most trusted financial services firms and Charles Schwab Bank as its most trusted bank for 2023.”

“By seeing ‘through clients’ eyes’ for the last 50 years, we have earned consistent confidence from investors that helps power our strong organic growth,” continued Mr. Bettinger. “During the third quarter, we gathered $46 billion in core net new assets, including $27 billion in September following the completion of our latest Ameritrade client conversion cohort. While expected deal-related attrition has temporarily weighed on net new asset flows, our underlying growth recipe remains very much intact. Year-to-date, we have attracted $248 billion of core net new assets from accounts originally opened at Schwab – an annualized Schwab originated organic growth rate of over 6%. As of September 30, investors have entrusted us with a total of $7.82 trillion in client assets across 34.5 million accounts.”

Mr. Bettinger added, “Over Labor Day Weekend, we successfully completed the single largest conversion event in our industry’s history. During those three days, we transitioned $1.3 trillion in client assets – including more than 7,000 Registered Investment Advisors (RIA) served by the Ameritrade Institutional business and 3.6 million retail accounts. The thoughtful planning and relentless dedication of our employees helped ensure there were no significant disruptions to the client experience and overall service levels remained strong – including answering client calls in under 1 minute. We have now converted approximately 80% of Ameritrade client assets and accounts, with deal-related attrition tracking markedly better than our initial expectations. In addition to these favorable retention trends, engagement levels across recently converted clients has also picked up – including positive new account formation and net asset flows across both Retail and RIA clients.”

Mr. Bettinger concluded, “Concurrent with progressing the Ameritrade integration, we remain focused on further enhancing Schwab’s modern wealth platform by advancing our key strategic initiatives of scale and efficiency, win-win monetization, and segmentation. We have identified a number of opportunities for increased efficiency, including capturing the remaining deal expense synergies, streamlining our operational design, aligning our geographic footprint to match our hybrid workforce, and harnessing the benefits of increased automation. Once fully implemented, we expect these actions to deliver at least $1 billion of incremental annual expense savings. Even as we seek to improve upon our industry leading cost structure, we are continuing to enhance our segmented offering for the broad range of clients we serve. For clients seeking assistance with their portfolios, our wealth management solutions attracted year-to-date net flows of $24 billion – including record flows into Schwab Wealth Advisory™, Wasmer Schroeder™ Strategies, and Schwab Personalized Indexing®. At the same time, Schwab is expanding the suite of tools and resources available to self-directed investors to help them achieve better financial outcomes. Today we announced the launch of our new end-to-end trader experience that combines access to thinkorswim® with curated education for all levels and specialized service and support. This offer is tailored to meet the specific needs of a highly engaged client group that on average maintains approximately 4x more assets at the firm relative to other retail households while also utilizing a broad array of other products offered across Schwab. Continuing to invest in our platform allows us to meet the evolving needs of investors, while keeping us positioned for sustained growth over time.”

CFO Peter Crawford noted, “Our continued success with clients and diversified model helped produce third quarter net revenues of $4.6 billion. This result represents a 16% decline from last year’s record period, primarily driven by the temporary utilization of higher cost funding, lower interest-earning assets, and softer trading volumes. Net interest revenue was down 24% year-over-year to $2.2 billion, reflecting the impact of client allocation decisions within a higher interest rate environment. However, cash realignment activity decelerated further during the quarter – even with the brief uptick in August and an increase in long-term interest rates. September was particularly strong as net outflows from transactional cash were lower than any prior monthly period this cycle and bank sweep deposits increased month-over-month for the first time since March 2022. Additionally, the combination of ongoing interest in Schwab’s proprietary fund products, growth in no-transaction fee platform balances, and strong flows into our advised solutions pushed asset management and administration fees to a quarterly record of $1.2 billion, up 17% versus the prior year.”

“We maintained Schwab’s balanced approach to expense management while successfully reaching another key checkpoint in the Ameritrade integration effort,” added Mr. Crawford. “GAAP expenses were up 14% to $3.2 billion, including $106 million in acquisition and integration-related costs, $135 million in amortization of acquired intangibles, and $279 million in costs related to our previously announced restructuring. Exclusive of those items, adjusted total expenses (1) equaled $2.7 billion, or a year-over-year increase of 5%. Pre-tax profit margins finished the quarter at 30.0%, or 41.3% on an adjusted (1) basis – the 12th consecutive quarter above 40%.”

Mr. Crawford concluded, “During the quarter, our balance sheet management continued to prioritize flexibility in support of our growing client base. In late August, we issued approximately $2.4 billion of senior notes across two tranches due in 2026 and 2034, further bolstering our diversified liquidity profile. Schwab’s consolidated balance sheet totaled $475 billion at quarter-end, down 7% sequentially, as available net cash flows from our investment portfolio were used to pay down supplemental borrowings. Our capital levels also continued to build during the quarter as our consolidated Tier 1 Leverage ratio increased to 8.2% and our Adjusted Tier 1 Leverage Ratio (1) expanded by more than 40 basis points to 4.1%. Ratios at Charles Schwab Bank, SSB (CSB) followed a similar trajectory with CSB Tier 1 Leverage increasing to 9.6%, or 4.4% on an adjusted (1) basis. As we move towards a new year, our consistent strategy, key competitive advantages, and ‘through the cycle’ financial model keep us well-positioned to deliver long-term value to all of our stakeholders.”

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