Last week, Charles Schwab Corp. (SCHW) released its Monthly Activity Report for August 2011, recording 35% jump in client activity compared with July 2011 and 57% compared with August 2010. The company’s Daily Average Revenue Trades (DARTs) stood at 545,300 during the month under review.
Similarly, Schwab registered an increase in new assets, with net inflow of $62.4 billion in August (including inflows of $56.1 billion from a mutual fund clearing services client) as against a net inflow of $9.9 billion in July 2011 and $4.2 billion in August 2010. Moreover, the company’s client assets totaled $1.65 trillion as of August end remaining at par with the prior month, but up 19% from the prior-year comparable period.
Additionally, Schwab recorded opening of 71,000 brokerage accounts in August 2011, up 27% from July 2011 and 20% from August 2010.
At the end of the reported month, Schwab’s active brokerage accounts totaled 8.181 million, flat sequentially but up 3% year over year. Similarly, clients’ banking accounts inched up 1% sequentially and 17% year over year to 756,000. However, the number of corporate retirement plan participants rose 1% from July 2011 but inched down 1% from August 2010 to 1,452 million.
Peer Performance
Earlier last week, one of Schwab’s competitors, E*TRADE Financial Corporation (ETFC) also recorded a sequential as well as year-over-year rise in average U.S. trades, driven by volatile markets. For the reported month, DARTs were 193,546, up 34% sequentially and 57% year over year.
Our Viewpoint
We expect increasing money market funds to hurt Schwab financially as these funds are less profitable than stock market funds. Moreover, a significantly low interest rate environment would further compel the company to waive fees.
However, with the completion of the optionsXpress Holdings Inc. acquisition on September 1, the company’s top line is expected to benefit from increased derivative trading. Moreover, capital spending initiatives would augment further revenue growth.
Schwab currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we maintain a long-term Neutral recommendation on the stock.
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