Charles Schwab Corp.'s shares advanced after executives suggested the worst is over for the brokerage following an exodus of bank deposits amid the worst U.S. financial crisis since 2008.
While bank deposits fell 7% in the second quarter from the prior period and 31% from a year ago, the firm said Tuesday it anticipates seeing growth again by year-end. The firm also expects its net interest margin for the quarter to be a low point for the year, and that it will continue to need less supplemental funding.
Shares rose 12.5% to $65.71 at 10:01 a.m. New York time.
Schwab has been facing pressure from investors, particularly since March when the collapse of several midsize U.S. lenders focused attention on unrealized losses from securities held on bank balance sheets.
The Federal Reserve's interest rate hikes over the past year have pressured the brokerage's banking arm, a pivotal source of revenue. Higher rates encouraged some Schwab clients to move their money from the bank to other investment products, including money-market funds, in a process known as "cash sorting."
The firm is striking a positive note as the Fed eases up on interest-rate increases.
"We should see a stabilization of revenue and then a resumption of growth," Chief Financial Officer Peter Crawford told analysts on a call Tuesday. "We expect we'll see return of deposit growth, I would say, ahead of that typical seasonal buildup that you get in later November and into December."
Decelerating Outflows
Schwab's customer deposits dropped to $304.4 billion as of June 30, the Westlake, Texas-based brokerage said
Deposits were also down 31% from a year earlier. The firm's outflows are decelerating, as they fell 11% in the first quarter from year-end.
The firm also reduced its borrowings from the Federal Home Loan Bank system by 10% since the prior quarter.
"We're already past the peak usage of temporary supplemental funding," Crawford told analysts.
Schwab shares declined 30% this year through Monday compared with a 1% gain in the S&P 500 Financials Index.
Adjusted earnings per share were 75 cents, four cents more than the average estimate of analysts in a Bloomberg survey. Revenue totaled $4.7 billion, compared with Wall Street's $4.6 billion estimate.
The firm gathered $52 billion in core net new assets during the quarter, bringing year-to-date asset gathering to more than $180 billion.
