Charles Schwab Corp. (NYSE: SCHW) remains well-positioned for growth, driven by higher rates, opportunistic acquisitions and rising client assets. However, a mounting expense base and subdued trading revenues are worrisome.
Tailwinds for Schwab
High Interest Rates to Aid Net Interest Margin: Schwab's net interest margin is likely to improve in the near term, supported by the existing high-interest rate scenario. The company's NIM expanded to 1.98% in 2023 from 1.78% in 2022 and 1.45% in 2021 on account of high rates. However, due to rising funding costs, NIM did not experience growth in the first half of 2024.
Though high funding costs and low-yielding assets on the company's balance sheet are anticipated to weigh on the metric to some extent, high rates will likely aid NIM to some degree. We project NIM to be 2.13%, 2.83% and 3.13% in 2024, 2025 and 2026, respectively.
Strategic Acquisitions to Boost Client Assets: Schwab's proactive efforts to expand its client base in advisory solutions have been bearing fruit. The company's advice solution revenues reflected a compound annual growth rate (CAGR) of 10.4% in the last five years (2018-2023). The momentum continued in the first six months of 2024.
The acquisitions of USAA's Investment Management Company, Wasmer, Schroeder & Company, LLC and Motif's technology and intellectual property have strengthened the company's presence and diversified revenues.
Though the company reduced fees on certain advice solution products, revenues from these ...
