Charles Schwab shares rise as worst is over following deposit flight

financialpost.com:

Charles Schwab Corp.’s shares advanced after executives suggested the worst is over for the brokerage following an exodus of bank deposits amid the worst U.S. financial crisis since 2008.

While bank deposits fell seven per cent in the second quarter from the prior period and 31 per cent from a year ago, the firm said Tuesday it anticipates seeing growth again by year-end. The firm also expects its net-interest margin for the quarter to be a low point for the year, and that it will continue to need less supplemental funding.

Shares rose 12.5 per cent to US$65.51 at 11:32 a.m. New York time.

Toronto-Dominion Bank owns a 12 per cent stake in Schwab.

Schwab has been facing pressure from investors, particularly since March when the collapse of several midsize U.S. lenders focused attention on unrealized losses from securities held on bank balance sheets.

The Federal Reserve’s interest rate hikes over the past year have pressured the brokerage’s banking arm, a pivotal source of revenue. Higher rates encouraged some Schwab clients to move their money from the bank to other investment products, including money-market funds, in a process known as “cash sorting.”

The firm is striking a positive note as the Fed eases up on interest-rate increases.

“We should see a stabilization of revenue and then a resumption of growth,” Chief Financial Officer Peter Crawford told analysts on a call Tuesday. “We expect we’ll see return of deposit growth, I would say, ahead of that typical seasonal buildup that you get in later November and into December.”

Schwab’s customer deposits dropped to US$304.4 billion as of June 30, the Westlake, Texas-based brokerage said in a statement. That beat the average estimate of US$298.4 billion from analysts