Charles Schwab shares suffered their biggest intraday drop since the depths of last year's regional-bank emergency after the investing giant reported that fewer clients opened new brokerage accounts than analysts expected.
New brokerage accounts in the quarter rose to 985,000, the company said Tuesday in a statement. Although that's up from 960,000 in the same period a year earlier, it's less than the 1.04 million that analysts in a Bloomberg survey were expecting.
Executives warned on a conference call with analysts that they may begin to use some of their excess capital that would have previously been allocated to buybacks to reduce the company's supplemental borrowing. They also said they may restructure their balance sheet in order to shorten the duration of some of Schwab's investment portfolio, a move that could lead to more earnings volatility in the near term.
"This definition of a transition year is being realized," Co-Chairman and CEO Walt Bettinger said on the conference call.
READ MORE:
Shares of the company plummeted 7.5% at 9:36 a.m. in New York, the biggest intraday drop since March 2023 and one that made it the worst performer in the S&P 500 Index. The stock had risen 9.1% this year through the close of trading on Monday.
Investors soured on Schwab last year after the Federal Reserve rapidly increased interest rates, saddling the company with paper losses as the value of its bond investments took big hits. Simultaneously, consumers yanked their deposits held with the bank in search of higher-yielding alternatives, causing the company to seek out more expensive funding sources that they've since tried to pay down.
Crowded space
Schwab reported $1.33 billion in net income for the three-month period, beating a $1.23 billion average of analyst estimates. Earnings per share for the quarter were 66 cents, which also topped expectations.
The retail brokerage space has gotten more crowded as consumers flocked to the markets during the pandemic and have stuck with their new trading habits. Schwab has maintained its more conservative approach to retail investing as compared with crypto-friendly competitors like Robinhood Markets, but will roll out an alternative investments platform for qualified, self-directed individual investors this year. Bettinger said on a Tuesday call with analysts that six out of ten new clients are under the age of 40.
The Westlake, Texas-based firm announced in May that Mike Verdeschi, a three-decade veteran of Citigroup, will take over as chief financial officer from Peter Crawford. Crawford helped Schwab through last year's financial turbulence, which hit the banking division.
Schwab, founded by Charles "Chuck" Schwab more than 50 years ago, oversees more than $9.4 trillion in total client assets.
