Schwab Trading Revenue Plunges, Client Assets Hit $4 Trillion Milestone
Charles Schwab Corp.’s trading revenue plummeted in the fourth quarter following its adoption of zero-commissions in October, but its total revenue and profit continues to illustrate the success of its pivot away from a discount brokerage business model.
Schwab’s fourth-quarter revenue of $2.6 billion was down 2% from the year-earlier period, but included $1.6 billion of net interest revenue gleaned largely from cash in client broker accounts that Schwab sweeps into low-rate accounts at its bank and reinvests.
“We achieved impressive financial results in 2019 given the somewhat more challenging than expected macroeconomic backdrop and our own pricing decisions,” Chief Financial Officer Peter Crawford said in a prepared statement.
Schwab’s fourth-quarter profit fell 9% from the year-earlier period to $852 million.
Reflecting the company’s swivel to a banking model, Crawford said net interest revenue for all of 2019 grew 12% from the prior year to $6.5 billion, and represented 61% of its total revenue. Even after the Federal Reserve’s round of rate cuts, Schwab achieved higher average investment yields, Crawford said.
Trading revenue, on the other hand, declined 19% annually to $617 million “due to our pricing actions,” he said. In the December quarter, when zero commissions were adopted, commissions fell 58% to $86 million from $206 million in the fourth quarter of 2018.
Schwab was the first major firm catering to self-directed investors to adopt zero commissions, leading Fidelity Investments, TD Ameritrade, E*Trade and other rivals to follow.
Schwab, which services independent investment advisers as well as direct retail customers, subsequently announced plans to buy TD Ameritrade, another player in both channels. In the fourth quarter, Schwab booked $17 million of expenses related to the pending $26-billion stock acquisition and to its $1.8 billion cash deal for USAA’s retail brokerage businesses.
Schwab’s two primary businesses generated $77.3 billion of net new assets, up 40% from what they collected in the fourth quarter of 2018. Schwab ended 2019 with total client assets of $4.04 trillion, up 24% from the end of 2018.
It reported that asset management and administration fees of $845 million for the quarter and $3.2 billion for the year were flat with the previous periods.
Clients opened 433,000 new brokerage accounts during the fourth quarter, 14% more than in the fourth quarter a year ago. Total active brokerage accounts climbed 7% to 12.3 million, banking accounts grew 7% to 1.4 million and corporate retirement plan participants rose 6% to 1.7 million.
Schwab recorded $62 million in severance expenses during the quarter, following its announced plan to cut 600 jobs.