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Charles Schwab (NYSE:SCHW) pulled in more than $53B of core net new client assets in March, its second highest amount for any March in its history, the company’s founder and CEO said.
“Our business is extremely robust,” Founder and Co-Chairman Charles Schwab and CEO and Co-Chairman Walt Bettinger said in a commentary posted late Thursday on the company’s website. Specifically, the firm’s trading and wealth management businesses “experienced a very strong first quarter,” they added.
The duo also explained the effect of Federal Reserve’s tighter policy on the firm’s business. “The logical and expected result of that process for banks and brokerages — Schwab (SCHW) included — has been that as interest rates rose, investors moved their investment cash from relatively low-return accounts to higher yielding investments such as money market funds,” they said.
That trend is expected to eventually level off. The amount of cash clients prefer to have access to, called transactional cash, typically is about 5-10% of a client’s overall assets at Schwab (SCHW), they said. While it increases during uncertain times, “History suggests the movement of cash into investments such as money markets, bonds and CDs reaches a peak and then returns back towards historical norms,” Schwab and Bettinger said.
The higher interest rates do increase Schwab’s (SCHW) cost of funding and “consequently have some impact on earnings,” they said. “But that higher cost of funding will begin to decrease, which combined with natural growth in our business and lower expenses, we will eventually begin to enjoy growth in earnings.”
They also said it’s possible the U.S. is heading into a recession. “It may be mild, but of course, no one ever knows,” they said. “But for investors, the anticipation of recession is usually seen as an opportunity to engage, and so recessions often mark a reversal for the stock market.”
Charles Schwab (SCHW) management will provide investors more information at the company’s Spring Business Update on April 17.
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