Charles Schwab Profit, Revenue Expected to Rise, Driven by Rate Hikes

Brokerage may have benefited from Fed rate activity and market volatility

Charles Schwab office building in SOMA district of San Francisco.

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Key Takeaways

  • Charles Schwab is expected to report fourth-quarter adjusted earnings per share (EPS) of $1.09 versus 86 cents in the prior-year quarter.
  • Analysts predict Schwab's revenue will climb nearly 19% to $5.6 billion for the latest quarter.
  • Schwab, the second-largest brokerage in the country by assets under management (AUM), has benefited from rising interest rates and market volatility.

Charles Schwab Corp. (SCHW), the second-largest brokerage in the U.S. by assets, will probably say profit rose in the last three months of 2022 as interest rates reached a 15-year high.

The firm probably will say net income rose more than 25% to $2 billion, or $1.09 per adjusted share, when it reports fourth-quarter earnings on Wednesday before markets open, according to estimates from Visible Alpha. Revenue is expected to climb by about 19% to a record $5.6 billion.

Schwab is among financial companies that have benefited from rising interest rates, which allows it to charge customers more for loans and other products. The firm also got a lift from market volatility as trading clients seek fleeting deals, boosting transaction fees.

That said, Schwab shares had a tumultuous 2022, plunging early in the year amid concern higher rates would push clients to move money to money market funds from deposit accounts. That opinion changed by the end of the year. Schwab is "better insulated from broader market and credit risk" than similar brokerages thanks to its low-credit-risk Treasurys holding, according to UBS analyst Brennan Hawken.

Schwab shares fell about 10% in the last year, compared with a 14% decline in the S&P 500 Index (see chart below).

One Year Total Return for S&P 500 and Charles Schwab
Source: TradingView.
Charles Schwab Key Stats
  Estimate for Q4 FY 2022 Actual for Q4 FY 2021 Actual for Q4 FY 2020
Adjusted Earnings Per Share ($) 1.09 0.86 0.74
Revenue ($B) 5.6 4.7 4.2
Active Brokerage Accounts (M) 34.0 33.2 29.6

Source: Visible Alpha

The Key Metric: Active Brokerage Accounts

The number of active brokerage accounts is a key metric for brokerages such as Charles Schwab because they make money from users placing trades through their platform. The more people making trades, the greater the amount the company can earn from commissions, margin loans, and other fees.

Schwab likely will report that its active brokerage accounts climbed by 2.6% to 34.0 million in the last quarter of the year, the smallest year-over-year improvement in many years. A slowdown in new accounts throughout 2022 hides the fact that Schwab's brokerage account base has nearly tripled in the last three years, mostly due to a significant uptick in accounts in the last quarter of 2020.

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  1. CNBC. "Fed Raises Interest Rates Half a Point to Highest Level in 15 Years."

  2. "The Largest Broker Dealers By Assets Under Management (AUM) in 2023."

  3. Visible Alpha. "Financial Data."

  4. "Higher Rates, Robust Trading to Aid Schwab's (SCHW) Q4 Earnings."

  5. Barron's. "Charles Schwab Stock Is Ready to Put 2022 Behind It. It’s Time to Buy." (Subscription required.)

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