Charles Schwab’s Big Bank Is Causing Big Trouble for the Company and Its Comeback Plan
Charles Schwab is a household name for many in the investing world, known as one of America’s largest broker-dealers. However, after a year-long industry push to commission-free trading, over half of the company’s revenue now comes from a lesser-known source — its bank. With a hefty $250B in bank assets, Schwab operates one of America’s biggest financial institutions. Yet, despite its impressive size, its earnings have slipped from their peak in Q1 2023.
- Unlike traditional banks, the brokerage behemoth doesn’t focus on making loans directly to consumers or businesses. Instead, it parks its cash in Treasuries and mortgage-backed securities.
- The catch? Over $150B of its balance sheet is tied up in assets earning just 1.7% — a far cry from the current Fed rate.
Trading places: Worsening matters, customers started pulling their money out to chase higher returns in money market funds. Schwab was in a bind: it couldn’t easily sell off its low-yielding investments without taking a huge hit, so it began borrowing at higher rates to cover those withdrawals. Adding to the pressure, TD Bank recently sold some of its Schwab shares to cover money laundering expenses. This move might stall the bank’s turnaround plan under new management, who are now pushing financial planning services (currently 11% of revenue) and bank loans (which account for $40B of its $250B deposits). Investors remain cautious — the brokerage firm’s stock is up just 8% over the last year, compared to the S&P 500’s 27% gain.
