SCHWAB CHARLES CORP Q2 FY2024 earnings call

• Successfully completed the last Ameritrade client transition group, with attrition well below industry averages and estimates. - Key client metrics solid: equity buy-sell ratio ~1.1, daily average trades high. - Strategic focus areas include combining Schwab and Ameritrade strengths, enhancing wealth solutions, client segmentation (RIAs, retail high net worth), and 'Brilliant Basics' to improve client experience. - Bank operations: plan to adjust balance sheet, invest in technology for lending, use third-party banks to manage deposits, lower capital intensity, and improve liquidity over time while retaining ability to meet client banking needs.

Net new assets year-to-date were over $150 billion, including Q2 asset gathering of about $60 billion, up 17% from the same period last year. Daily average trades from the Ameritrade integration were over 3.5 million. Managed Investing solutions saw increased client interest. New brokerage accounts were nearly 1 million during the quarter, with nearly six out of 10 new clients under the age of 40. Ameritrade brought over ~$2 trillion in client assets, 17 million client accounts, with Promoter Scores for former Ameritrade retail clients increasing about 50 points nine months post conversion, and Promoter Scores for advisory services returning to pre-conversion levels.

• Full year revenue expected to range between flat to up 2% vs 2023. - Adjusted expenses expected to be approximately 2% higher than 2023. - NIM expected to reach mid-2.20s in Q4 2024 and approach 3% by end of 2025. - Consolidated adjusted Tier 1 leverage ratio expected to approach 6.75%-7% by end of 2024, with focus on supporting business growth and considering capital return when excess capital is available.

• Volatility in client cash realignment activity due to macroeconomic factors. - Dependence on favorable market conditions and client behavior for asset flows. - Regulatory risks associated with banking operations and third-party bank relationships, including potential impacts on client yields and economics.

Q: Brian Bedell from Deutsche Bank asked about deposit rates and Fed cuts.

A: Peter Crawford responded that the scenario is based on a single Fed cut in September 2024, noting deposit betas may be higher in easing cycles and expecting rate cuts to affect client transactional cash and replacement funding costs.

Q: Ken Worthington from JPMorgan asked about third-party banks and regulatory risks.

A: Walt Bettinger discussed the economics of third-party bank agreements and stated Wells Fargo's issues have no meaningful implications for Schwab as fiduciary advisory solutions already offer money market yields.

Q: Kyle Voigt from KBW asked about Ameritrade attrition and net new assets.

A: Walt Bettinger explained that Ameritrade clients' behavior is aligning with expectations, with improved Promoter Scores and movement towards net new asset growth to reach the 5%-7% organic growth target.

Q: Dan Fannon from Jefferies asked about sequential growth after Q3 flat.

A: Peter Crawford mentioned assumptions include a Fed cut in September, moderating client cash realignment, and continued margin balance growth, with supplemental borrowing influenced by margin balance growth.

Q: Steven Chubak from Wolfe Research asked about securities portfolio repositioning.

A: Peter Crawford stated repositioning is not near term and is mindful of not jeopardizing client trust.

Q: Brennan Hawken from UBS asked about shift to third-party banks.

A: Peter Crawford explained the strategic shift to third-party banks over years to improve liquidity, lower capital intensity, and extend FDIC insurance, with decisions based on economics.

Q: Benjamin Budish from Barclays asked about securities maturing.

A: Peter Crawford expected a pace of ~$10-11 billion in cash flows off the investment portfolio per quarter.

Q: Alex Blostein from Goldman Sachs asked about deposit growth framework.

A: Peter Crawford discussed deposit flow variability influenced by net new assets, market engagement, and rate-driven allocations, emphasizing long-term growth with stable environment.

Q: Bill Katz from TD Cowen asked about Ameritrade scale and capital return.

A: Walt Bettinger highlighted Ameritrade's role in the business and confidence in long-term organic growth, with the combined platform enhancing client satisfaction.

Q: Michael Cyprys from Morgan Stanley asked about Wells Fargo and fiduciary cash.

A: Walt Bettinger clarified fiduciary accounts in advisory solutions already offer money market yields and no material impact from Wells Fargo's announcement.

Q: Devin Ryan from Citizens JMP asked about lending.

A: Walt Bettinger discussed plans to expand lending capabilities with client-friendly processes, aiming to close the gap with competitors and enhance service for adviser clients