On Monday, Charles Schwab Corp. (SCHW) released its Monthly Activity Report for October 2011, recording client activity increases of 9% from September 2011 and 37% from October 2010. The company’s Daily Average Revenue Trades (DARTs) were 509,500 during the month under review. The rise in DARTs was mainly attributable to a seasonal rise in mutual fund transactions on its OneSource platform.
Schwab registered a sharp drop in new assets, with net inflow of $5.0 billion in October 2011 as against $13.7 billion in September 2011 and $6.8 billion in October 2010. However, the company’s client assets totaled $1.69 trillion as of October end, up 6% from the prior month and 11% from the prior-year comparable period.
Additionally, Schwab opened 64,000 brokerage accounts in October 2011, down from 379,000 recorded in September 2011 but up from 60,000 in October 2010.
At the end of the reported month, Schwab’s active brokerage accounts totaled 8.523 million; flat sequentially but up 7% year over year. Similarly, the number of corporate retirement plan participants was 1,468 million, almost at par with September 2011 and October 2010. However, clients’ banking accounts inched up 1% sequentially but increased 15% year over year to 774,000.
Peer Performance
Last week, TD Ameritrade Holding Corporation (AMTD) also recorded a sequential as well as year-over-year rise in average U.S. trades for October 2011. The company’s DARTs were 407,000, up 4% sequentially and 12% year over year.
Our Take
We expect increasing money market funds to hurt Schwab financially as these are less profitable than stock market funds. Moreover, a drastically low interest rate environment would further compel the company to waive fees. However, with the completion of acquisition of optionsXpress Holdings Inc. on September 1, the company’s top line is expected to benefit from increased derivative trading. Moreover, capital spending initiatives would augment revenue.
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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