(Bloomberg) — Executives at Charles Schwab Corp. said their cash sorting problems, where customers shift money from the bank into higher-yield products, are starting to ease despite persistently high interest rates.
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“Cash rebalancing activity continued to slow during the quarter, despite the brief spike in August and a rise in long-term interest rates,” Chief Financial Officer Peter Crawford said in a statement Monday as the company reported its third-quarter results gave.
The Westlake, Texas-based company said third-quarter deposits fell 28% from a year earlier to $284.4 billion, beating the average estimate of $268.8 billion among analysts surveyed by Bloomberg. dollars would have exceeded.
Schwab shares rose 3.7% to $53.22 as of 10:05 a.m. in New York.
The company’s net interest income fell 24% from a year ago to $2.2 billion as customers shifted cash to higher-yield products. Schwab reported $46 billion in core net new money for the quarter and $27 billion in September – down 32% from a year ago. Adjusted earnings per share were 77 cents, slightly above analyst estimates of 74 cents.
Net sales fell 16% year over year to $4.6 billion, falling slightly short of analysts’ expectations. Full-year 2023 revenue is expected to decline 8% to 9% compared to last year, the company said on a slide during its earnings presentation. Still, executives told analysts that Schwab would benefit from increased interest rates because of its many variable-rate products.
Cost savings
The Federal Reserve’s rate hikes over the past year and a half to combat inflation have put pressure on Schwab’s banking arm, a key source of revenue. Higher interest rates prompted some customers to shift money from the bank to other investment products, including money market funds, a process known as “cash sorting.”
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Company executives have previously said the worst of this deposit movement is over and that they expect growth to resume by the end of this year.
The stock has fallen about 38% since the start of the year after the bank was hit by some of the turmoil that hit midsize banks this spring. The company issued about $2.4 billion of senior notes in late August, “further strengthening our diversified liquidity profile,” Crawford said Monday.
He said the company will likely issue more debt “to build additional liquidity” before some debt comes due, which Schwab expects early next year.
The company has also identified opportunities to increase efficiency, including “taking advantage of the benefits of increasing automation,” Chief Executive Walt Bettinger said in the statement. “Once fully implemented, we expect these measures to result in at least $1 billion in additional annual cost savings.”
Continuing its integration with TD Ameritrade, the broker on Monday unveiled a revamped trading platform based in part on TD Ameritrade’s systems.
“It is a powerful, holistic retail commerce experience that surpasses its predecessors and makes Schwab the clear retail destination,” James Kostulias, managing director and head of merchant services at Schwab, said in a statement. “Trading is a big focus for us at Schwab and represents a crucial part of our overall business going forward.”
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