Investment brokers Charles Schwab announced earnings results Monday morning. Interactive Brokers is on deck to report Tuesday. Both brokers beat earnings, but Interactive Brokers fell short of revenue estimates. Charles Schwab stock rose on Tuesday after dropping following Monday's results. IBKR stock advanced early Wednesday, following Tuesday's afterhours report.
Higher interest rates rising in the third quarter should have helped lift brokers' results compared to Q2, Barclays analyst Benjamin Budish wrote in a recent research note. But there are still plenty of economic headwinds. Citi analyst Christopher Allen says he prefers brokerages with less exposure to client cash sorting and capital markets. Cash sorting is when customers move their un-invested cash into money market funds or higher-yield alternatives.
Budish noted his outlook for the broker space is "more mixed at present" and is more positive on exchanges, which should see plenty of trading activity with volatility expected to continue.
Charles Schwab Earnings
Expectations: Analysts predicted Charles Schwab's earnings would spike 25% to $1.05 per share on 18% revenue growth to $5.41 billion.
Results: Charles Schwab's adjusted earnings leapt 30.9% to $1.10 per share on 20% revenue growth, to $5.5 billion.
Schwab management called the results the "strongest quarterly performance in company history," with net income reaching a record $2 billion. Driving the record quarterly revenues was a 44% jump in interest revenue, to $2.9 billion. Total active brokerage accounts rose 4% year-over-year to 34 million. However, total client assets fell 13% to $6.6 trillion as the company reported a $1.4 trillion impact from lower market valuations on client portfolios over the last year.
Charles Schwab stock traed flat early Wednesday, after rising 1.8% Tuesday. Shares are basing after tumbling 27% following a breakout from a flat base in mid-December.
Interactive Brokers Earnings
Expectations: Wall Street predicted a 23% jump in earnings to 96 cents per share and a 22.8% revenue increase to $798 million.
Results: Interactive Broker's adjusted earnings leapt 38% to $1.08 per share while net revenue rose 21% to $790 million.
Net interest income catapulted 73% to $473 million on higher interest rates. And commission revenue edged up 3% to $320 million on higher volumes of customers trading futures and higher options commissions per contract.
IBKR stock junmped nearly 5% in premarket trade Wednesday, after closing 3.5% higher during Tuesday's trading day. Its relative strength line touched a new high ahead of results.
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