Charles Schwab stock (SCHW) surged 12.5% Tuesday as investors bet the worst was over for an investment firm that attracted scrutiny as the banking industry struggled through its most challenging period since the 2008 financial crisis.
Charles Schwab said its deposits dropped 31% during the second quarter, falling to $304 billion. Net income for Charles Schwab also fell 28%, to $1.3 billion, while revenue dropped 9%.
What helped its stock rise Tuesday morning was that a number of key figures were better than expected, including revenue, net interest income, and interest expense.
The company also said that a trend of “cash sorting,” where customers shift money from low-paying sweep accounts to higher-paying options, had slowed since May.
“While anticipated client cash realignment, along with net equity buying during June, pushed cash levels lower, we observed a continued and substantial deceleration in the daily pace of cash outflows versus prior months,” CFO Peter Crawford said.
“The continuation of this trend through the end of the quarter further strengthens our conviction that this realignment activity will inflect before the end of 2023, unlocking growth in client cash held on the balance sheet.”
Charles Schwab was among a number of banks that attracted heightened scrutiny following the turmoil in the spring that took down three sizable regional institutions and triggered outflows across the banking system.
Its depositors joined many across the banking world who began flocking to higher-yielding opportunities such as money market funds or seeking the perceived safety of bigger financial institutions.
Read more: The best high-yield money market accounts for July 2023
That shift placed pressure on Charles Schwab by raising its funding costs and causing it to seek out additional borrowings from the Federal Home Loan Bank.
“While recent results have been negatively influenced by a number of temporary factors, we remain extremely well positioned heading into the years to come,” Crawford said.
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Source: https://finance.yahoo.com/news/investors-bet-the-worst-is-over-for-charles-schwab-141827060.html