Charles Schwab’s Stock Plummets Over 15% Amid Disappointing Earnings and Banking Challenges

Charles Schwab’s stock experienced a significant drop this week, falling over 15%. The decline was attributed to disappointing earnings driven by challenges at its banking division. On Friday, July 19, the stock was reported to be down 17.5% after the company announced its second-quarter earnings for 2024. For the first half of the year, Schwab’s revenue dropped by 3% compared to the previous year, while net income fell by 7% to $2.7 billion.

The company’s struggles stem from having a large amount of low-yielding loans on its balance sheet. During the pandemic, Schwab invested heavily in loans with interest rates close to zero. This has become a costly issue now that the Federal Reserve’s benchmark rate is above 5%. With $154 billion in “held to maturity” loans yielding around 1.7%, Schwab faces increasing pressure to pay depositors a higher interest rate, which rose to an average of 1.31% last quarter. This growing financial burden is a key factor contributing to investors’ negative sentiment towards Charles Schwab.

Despite these challenges, there are signs of resilience for the company. It continues to lead the brokerage sector, boasting a record $9.4 trillion in total client assets. Details suggest that while the low earnings pose a problem, Schwab remains a solid choice for long-term investors looking for potential growth as it addresses its banking business. Currently, the stock is trading at a price-to-earnings ratio of approximately 25, which suggests it might not be a bargain. However, historically high earnings per share indicate that there could be value for those willing to look past the current difficulties.