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Charles Schwab (NYSE:SCHW) CFO Peter Crawford said Monday that outflows are starting to ease and nearing the return of sweep cash growth, bringing greater clarity towards core earnings power.
One indication of cooling outflows is the pace of cash realignment activity has decelerated in September to the lowest level seen in the current cycle, Crawford said at the brokerage firm’s Fall Business Update.
What’s more, Schwab (SCHW) has seen its first month of bank sweep deposit growth since before the Federal Reserve’s rate-hiking cycle started in March 2022.
Crawford also noted the level of supplemental borrowing has continued to retreat, “as the ongoing cashflow generated from our investment portfolio has been more than sufficient to support the slowing bank deposit sweep outflows.” That paves the way for SCHW to resume reinvestment activity in 2025, which provides “a meaningful boost to net interest margin,” assuming rates fall with expectations, he added.
The firm sees NIM rebounding through 2024 and approaching 3% by the end of 2025.
Revenue is expected to decline by 8%-9% Y/Y in full-year 2023, compared with the -7.9% average analyst estimate. Expense growth, on an adjusted basis, is seen growing 6% this year.
“The continued prioritization of paying down supplemental borrowings versus reinvesting cash flows back into the investment portfolio will influence the trajectory of our balance sheet,” according to the slide presentation.
Earlier on Monday, the company turned in Q3 earnings that topped Wall Street expectations, even as it experienced some attrition from absorbing TD Ameritrade accounts that has temporarily weighed on net new asset flows.
