Charles Schwab Stock Sinks as CEO Says Bank Will Get ‘Smaller’

Key Takeaways

• Charles Schwab intends to shrink its bank by relying on off-balance sheet deals with partners, CEO Walt Bettinger said in the financial services firm’s second-quarter earnings call Tuesday.

• The company reported 985,000 new brokerage accounts in the second quarter, below expectation.

• Schwab posted adjusted earnings per share (EPS) of 73 cents on revenue of $4.69 billion, essentially in line with analysts’ expectations.

Charles Schwab (SCHW) shares tumbled in intraday trading Tuesday after Chief Executive Officer (CEO) Walt Bettinger warned that the financial services company plans to downsize its bank in order to maintain profitability.

Schwab plans to rely on off-balance sheet deals with outside partners to hold customers’ deposits in order to more efficiently use capital, Bettinger said on the company’s second-quarter earnings call, according to a report from Bloomberg.

“These various actions should lead—again over time—to a bank that is somewhat smaller than our bank has been in recent years, while retaining the ability to meet our clients’ banking needs, lower our capital intensity and, importantly, protect the economics we’re able to generate from owning a bank,” Bettinger was quoted as saying.

New Brokerage Accounts Miss Expectation

The Westlake, Texas-based company reported 985,000 new brokerage accounts in the quarter, up from 960,000 a year earlier but below the 1.04 million consensus from analysts polled by Bloomberg.

Schwab posted adjusted earnings per share (EPS) of 73 cents per share on revenue of $4.69 billion, roughly in line with analysts’ consensus estimates compiled by Visible Alpha.

“Schwab’s ‘no trade-offs’ value proposition continued to resonate with investors, as new brokerage accounts opened this year grew to over 2 million and second quarter core asset gathering equaled $61.2 billion–a year-over-year increase of 17%,” Bettinger said in a statement.

Shares of Schwab fell nearly 9% to $68.57 as of 12:30 p.m. ET Tuesday to nudge into negative territory for 2024.

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