A pedestrian passes a bank branch of Charles Schwab Corp. in downtown Chicago, Illinois.
Christopher Dilts | Bloomberg | Getty Images
Charles Schwab, a retail investment giant, surpassed Wall Street's earnings and revenue expectations for the fourth quarter. This was the first earnings report since Schwab acquired rival TD Ameritrade for $ 26 billion.
Charles Schwab reported adjusted earnings of 74 cents per share on Tuesday, beating estimates of 71 cents per share, according to Refinitiv. Revenue was $ 4.18 billion, above the forecast $ 4.01 billion.
Schwab currently operates almost 29.6 million broker accounts.
Schwab's shares rose after rising slightly after Tuesday's opening bell.
Schwab's total client assets rose to a record $ 6.69 trillion in late 2020. This represents an increase of 66% over the previous year, which is supported by the additional assets of TD Ameritrade.
Schwab gained 15.77 million new customers in the fourth quarter, including 14.5 million new brokerage accounts from the merger of TD Ameritrade.
"Achieving record operating performance and closing the largest brokerage acquisition in history in the fourth quarter of 2020 was an exceptional keystone to an exceptional year," Schwab CEO Walt Bettinger told clients.
Daily average trades rose to 5.8 million in the fourth quarter, the highest in history. Schwab customers hit a high of 7.8 million trades on November 9th.
Record customer trading activity and the addition of TD Ameritrade resulted in an 88% increase in trading revenue to $ 1.4 billion. This happened despite the full-year impact of commission-free trading, which was implemented in late 2019.
Schwab and the other big brokers have had a record year for retail investments in 2020. Unprecedented market volatility and the Covid-19 lockdown offered regular investors the once-in-a-lifetime opportunity to play the surprising but epic comeback of stocks.
"With this in mind, customer loyalty in the financial markets rose to a record level. The pro forma combination of new households increased more than 175% compared to 2019, and the number of households doing business increased year-on-year by more than 50% year, "added Bettinger.
Schwab's shares are up nearly 60% since the last earnings report in October 2020. In addition to the boom in retail investments and the synergies with the acquisition of TD Ameritrade, Schwab is getting a boost from the rise in interest rates.
Schwab stock continues to be highly correlated to the return on the US 10-year yield as the broker spreads the client money held in each account by buying higher-yielding instruments like mortgage-backed securities and making loans funded from those deposits .
Schwab's fourth quarter results increased e-brokers' adjusted earnings to $ 2.45 per share and revenue to $ 11.7 billion for full year 2020.
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