Schwab earnings top estimates in first report since TD Ameritrade merger, accounts near 30 million

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A pedestrian passes in front of a Charles Schwab Corp. bank branch in downtown Chicago, Illinois.
Christopher Dilts | Bloomberg | Getty Images

Retail investing behemoth Charles Schwab beat Wall Street’s profit and revenue expectations for the fourth quarter, the first earnings report following Schwab’s $26 billion acquisition of rival TD Ameritrade.

Charles Schwab on Tuesday reported adjusted earnings of 74 cents per share, topping estimates of 71 cents per share, according to Refinitiv. Revenue came in at $4.18 billion, higher than the forecast $4.01 billon.

Schwab said it now operates nearly 29.6 million brokerage accounts.

Shares of Schwab rose were flat after rising slightly after the opening bell on Tuesday.

Total client assets for Schwab ballooned to a record $6.69 trillion at the end of 2020, a 66% increase year-over-year, bolstered by the added TD Ameritrade assets.

Schwab added 15.77 million new clients in the fourth quarter, which includes 14.5 million new brokerage accounts from the TD Ameritrade merger.

“Producing record operating performance and closing the largest brokerage acquisition in history during the fourth quarter of 2020 was an extraordinary capstone to an extraordinary year,” Schwab CEO Walt Bettinger told clients.

Daily average trades rose to 5.8 million in the fourth quarter, the highest on record. Schwab clients hit a peak of 7.8 million trades on November 9.

Record client trading activity, and the addition of TD Ameritrade, led to an 88% increase in trading revenue to $1.4 billion. This came despite the full-year impact of commission-free trading, which was implemented in the end of 2019.

Schwab and the other major brokers are coming off of a record year for retail investing in 2020. Unprecedented market volatility and Covid-19 lockdowns created a unique opportunity for regular investors to play stocks’ surprising but epic comeback.

“Against this backdrop, client engagement with the financial markets rose to record levels – pro-forma combined new-to-firm households increased more than 175% compared to 2019, with the number of households placing trades up more than 50% year-over-year,” added Bettinger.

Shares of Shares of Schwab are up nearly 60% since its last earnings report in October 2020. In addition to the retail investing boom and TD Ameritrade acquisition synergy, Schwab is getting a boost from the uptick in interest rates.

Schwab’s stock remains highly correlated with the yield on the U.S. 10-year as the broker earns a spread off of the customer cash held in every account, by purchasing higher yielding instruments like mortgage backed securities and making loans funded by those deposits.

Schwab’s fourth quarter results pushed the e-brokers full year 2020 adjusted earnings to $2.45 per share and revenue to $11.7 billion.

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