📉 Can Charles Schwab’s Unrivaled Run Continue?
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📉 Charles Schwab: The Uber Broker?
The world's largest broking firm by Assets Under Management (AUM), Charles Schwab (SCHW), is shooting for personalized experiences for its clients, not unlike what's the norm for ride-hailing and food-delivery apps. Between integrating TD Ameritrade and the topsy-turvy markets, can Charles Schwab find its mojo and make things happen? (Tweet This)
The Path To #1
In 1963, Charles R. Schwab launched a newsletter called Investment Indicator. It became so popular that over 3K subscribers subscribed to it, paying $84 each annually. In 1974, Schwab acquired Commander Industries, a brokerage firm that also published his newsletter, and changed its name to Charles Schwab & Co.
Schwab rose to fame as a discount broker and grew very quickly. In the 1980s, the company invested in technology, automation, and digital record-keeping to provide a superior customer experience. In 1983, Bank of America acquired Charles Schwab for $55M.
In 1984 Schwab introduced "The Equalizer," the first DOS-based portfolio management and trading tool. It also launched 140 no-load funds under the name Mutual Fund MarketPlace. A no-load fund is a mutual fund where securities are sold without a commission or sales charges. By the end of 1985, Schwab had 1.2M clients with a total AUM of $7.6B.
In March 1987, Charles Schwab, the man, bought back the eponymous company from Bank of America for $280M and took it public in September. Despite the Asian market collapse that year, Schwab launched the Financial Advisors Service to serve independent investment advisors. This advisor service business crossed $1B in client assets within a year of its launch.
Schwab introduced TeleBroker in 1989 (taking orders through phone), introduced Money Market Mutual Funds in 1990, and the Schwab 1000 Fund, an equity index fund, in 1991. That year alone, the Schwab 1000 Fund reached ~$200M in client assets. The company was added to the S&P 500 index in 1997.
At the turn of the century, Schwab acquired US Trust, the oldest trust company in the US, for $2.73B. US trust was fined $10M in a court case involving bank secrecy. Not wanting to court controversy, Schwab offloaded US Trust to Bank of America for $3.3B in cash in 2006.
Schwab, the CEO, stepped down in 2003 and turned over responsibilities to his man-Friday and Co-CEO David Pottruck. However, Schwab had to step in again in 2004 after Pottruck was fired for presiding over value destruction and falling profits. He finally relinquished the job in 2008 when COO Walter Bettinger was elevated to CEO position.
Staying Put As #1
Today, Charles Schwab is the world's largest broker, with $8.14T AUM - a record, as reported in Q4 2021. During the quarter, Charles Schwab reported revenues of $4.7B, led mainly by its Asset Management and Trading businesses. The trading business saw a 3X jump in its top line for the full year 2021, coming in at $4.1B compared to $1.4B in 2020.
Bettinger is now borrowing a leaf from Silicon Valley startups and focusing on making banking and brokerage transactions as personalized as the ubiquitous food-delivery or ride-hailing apps. To make the Charles Schwab user experience as seamless as Uber, DoorDash, Amazon is the next frontier for Bettinger.
In November 2019, Charles Schwab announced the acquisition of fellow broker TD Ameritrade for $26B. In mid-2020, the DoJ's antitrust division gave its blessings for the merger to proceed. The integration of the two companies is expected to be completed in the second half of 2023.
Crypto is on everyone's mind as Bitcoin and Ethereum are gyrating, trading down over 50% from last year's highs. In the first two days of this week, crypto markets lost $130B in value. Bettinger is cautious about foraying into the space, opting to pursue it as and when he sees regulatory clarity in this asset class.
Schwab was recently voted as the best online broker. With $8T in assets, it's not going to be easy to keep growing organically. The TD Ameritrade deal is a shot in the arm at the right time for this venerable broker. There will no doubt be teething issues as the integration with TD Ameritrade proceeds. The likes of Robinhood are also lurking around the corner to grab market share.
Be that as it may, Charles Schwab's shares have risen ~24,000% since going public. It seems the broker has some very satisfied shareholders and some very satisfied clients. Now, it's all eyes on the personalization challenge!
SCHW ended at $88.53, down 0.20%.
Company Snapshot 📈
SCHW $88.53 -0.18 (0.20%)
Analyst Ratings (19 Analysts) BUY 63% HOLD 31% SELL 6%
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Today's Market Terminology: Carry Trade
A bond market Carry Trade is where you borrow and pay interest in order to buy something else that has a higher interest rate
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