2023-04-17 09:57:37 ET
Charles Schwab ( NYSE: SCHW ) stock fell as much as 3% in early trade on Monday, before trimming losses to trade 0.4% higher, after the retail brokerage projected near-term revenue headwinds from higher funding costs.
The brokerage increased its use of higher cost funding sources temporarily as client realigned their allocations at a historically rapid pace. The higher cost liabilities have a weighted tenor of less than nine months, most of which are expected to be repaid as early as 2024-end.
"The impact of this higher cost of funding likely will cause Q2 total revenue to decline by mid-to-upper single digit percentage points Y/Y," said Charles Schwab ( SCHW ) CFO Peter Crawford in the firm's Spring Business Update for institutional investors.
However, he said the near-term headwinds should not change long-term margins and sees net interest margin steadily improving through 2024, approaching 3% by 2025-end. These headwinds are expected to diminish over the next seven quarters.
Earlier in the day, Charles Schwab ( SCHW ) reported an 11% decline in bank deposits as clients realigned allocations. "Early signs show cash realignment appearing to moderate and end some time in 2023," it noted. As of Q1-end, ~86% of its bank deposits were within FDIC insurance limits.
Charles Schwab ( SCHW ) plans to capture the remaining $500M-$600M in run-rate cost synergies from the TD Ameritrade acquisition during 2024, totaling $1.8B-$2.0B. It remains on track to complete the integration during H1 2024.
"While we do not see a feasible scenario where we might need it, in aggregate, we estimate having access to well over $300B in additional liquidity – without needing to sell a single security," said the brokerage.
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Charles Schwab expects near-term revenue headwinds from higher funding costs