Charles Schwab reported that net new assets fell to $4.9 billion in August, but the company attributed the decline to a temporary decline in TD Ameritrade clients and advisors.
New net assets were down from $43.3 billion a year earlier and down from $13.7 billion in July.
Schwab is in the process of migrating customers and advisors from TD Ameritrade, which it acquired three years ago, to its platform. Schwab Chief Financial Officer Peter Crawford said the decline in net new assets was temporary and that the level of decline was “notably better” than expected.
“The majority of these transaction-related outflows are attributable to Ameritrade RIA clients, including a select number of relationships that do not meet our standards for ongoing service relationships,” he said. .
Schwab reported total customer assets at the end of August were $8.09 trillion. This was a 14% increase compared to the same period last year and a 2% decrease compared to July.
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Charles Schwab, whose stock price has tumbled this year, is expected to release an update on total client assets and net new capital on Friday. Investors will be parsing the data for signs that Schwab is minimizing the attrition of TD Ameritrade clients and advisors. Investors are focusing on customer attrition more broadly as Schwab Bank has suffered capital outflows over the past year.
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Schwab (ticker: SCHW), which publishes monthly activity reports, is migrating accounts from TD Ameritrade to its own platform. Schwab’s previous activity report showed a decline in net new asset flow in July, which the company attributed to a decline in TD Ameritrade clients and advisors. The company reported total core new net assets in July at $13.7 billion, down from $33.8 billion in June and $31.5 billion in the same month last year. The stock price fell about 4% on that day.
Schwab acquired TD Ameritrade in 2020, significantly expanding its brokerage and advisor/custody businesses. The integration of the two companies took years. Over Labor Day weekend, Mr. Schwab said he passed a significant milestone with thousands of advisors and $1.3 trillion from TD Ameritrade.
Advisors and individual investors who did not want to move to Schwab likely left before the merger. This suggests that the negative impact on net asset flows will be greatest in July and August, but “looks poised to slow significantly in September or October,” JPMorgan said. analyst Kenneth B. Worthington said in a September 14 research note. Worthington is overweight on Schwab stock, with a price target of $95.
Schwab stock was trading around $59.50 as of midday Thursday. It is below its 52-week high of $86.63. The stock price has fallen about 29% since the beginning of the year.
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Schwab’s stock price plummeted in March due to the regional bank crisis and concerns about Schwab’s deposit outflow. Although the company is best known for its securities platform, Schwab also operates a large bank. A lump-sum deposit of a customer’s uninvested cash into a bank sweep account that pays the customer a low interest rate. Over the past year, customers have been shifting cash toward more expensive options, which has weighed on Schwab’s profits. If deposit outflows exceed Schwab’s cash reserves, the company will rely on other, more expensive sources of financing, such as Federal Home Loan Bank loans.
Schwab’s bank deposits fell to $304 billion in the second quarter. That’s down from $326 billion in the first quarter and $442 billion a year earlier, according to the company’s earnings report. Schwab executives said cash sorting is on the decline.
Shareholders can learn more about Schwab’s key data points, including bank deposits, in the company’s third-quarter earnings report.
In August, Mr. Schwab detailed a cost-cutting plan that included closing some offices and laying off staff.
Email Andrew Welsh at andrew.welsch@barrons.com.
