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Charles Schwab's stock drops after downbeat revenue outlook

MarketWatch logo MarketWatch 9/15/2020 Tomi Kilgore
MARKET PULSE

Shares of Charles Schwab Corp. (schw) dropped 3.0% in premarket trading Tuesday, after the discount broker provided a downbeat third-quarter revenue outlook. Schwab said the sharp reduction in long-term rates has led to an acceleration of prepayment activity in the mortgage-backed securities held within its investment portfolio, which is impacting net interest margin, and leading to third-quarter revenue that is running "slightly lower" than second-quarter results. The current FactSet consensus for third-quarter revenue of $2.51 billion implies 2.3% growth from second-quarter revenue of $2.45 billion. Separately, Schwab said total client assets at the end of August was $4.49 trillion, up 5% increase from the end of July and a 21% rise from a year ago. Client cash as a percentage of assets was 12.5% in August, down from 13.0% in July but up from 11.3% a year ago. "Thus far in the third quarter, equity market returns have been quite strong and client trading activity very robust relative to prior years," said Chief Executive Peter Crawford. "At the same time, continued compression of interest rates has been pressuring investment yields." The stock has slumped 24.9% year to date through Monday, while the S&P 500 (spx) has gained 4.7%.

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