Schwab’s Profit Soars 65% on Loan Earnings
Rising short-term interest rates have become a problem for some big U.S. banks, but they’re helping bolster the bottom line at discount brokerage Charles Schwab Corp.
The San Francisco-based company said Monday that second-quarter profit jumped 65% from a year earlier, thanks in part to higher earnings on loans to customers.
Total interest revenue at Schwab was $464 million in the quarter ended June 30, up from $275 million a year earlier. After deducting interest expenses, the brokerage’s net interest revenue totaled $297 million, up from $224 million a year earlier.
Schwab is earning more interest on so-called margin loans to customers -- debt secured by brokerage assets -- and on loans originated by the bank that the firm opened in 2003.
By contrast, major banks including Citigroup Inc. have been squeezed as higher deposit costs have eaten into loan earnings.
Schwab’s interest revenue is offsetting a sharp decline in revenue from clients’ trading activity. Trading revenue slid to $187 million in the quarter from $261 million a year earlier, in part reflecting Schwab’s cuts last year in commission rates -- a move aimed at taking back business from lower-cost rivals.
Schwab also benefited last quarter from higher fees from its asset management business. Total fee revenue rose to $552 million from $517 million.
Net income in the quarter was $186 million, or 14 cents a share, up from $113 million, or 8 cents a share. Analysts on average had expected profit of 13 cents.
It was Schwab’s most profitable three-month period since the company earned $199 million in the second quarter of 2000.
“We think it’s clear that we’ve turned around the company,” Chief Financial Officer Christopher Dodds said.
Investors pushed the stock up to its highest level in more than a year. The shares rose 63 cents to $13.37. They are up 12% year to date.
Some analysts lauded the company’s cost controls. Total expenses, excluding interest costs, fell 9% in the quarter from a year earlier.
