Shares of Charles Schwab surged on Wednesday morning following a company update that revealed strong net new asset growth and further signs that cash sorting is easing.
As one of the nation's largest wealth management firms, Schwab reported $29 billion in core net new assets for July, more than double the amount gathered in July 2023, according to the company’s monthly activity report. The firm’s total client assets reached $9.6 trillion by the end of July, marking a 16% increase from July 2023 and a 2% rise from June 2024.
Schwab also reported ongoing growth in client acquisition, with 327,000 new brokerage accounts opened in July, an increase of 8% and 5% compared to July 2023 and June 2024, respectively.
Schwab's shares were trading at $64.68, reflecting a 3.6% gain for the session, though still down 6% year-to-date. Meanwhile, the benchmark S&P 500 index was up 0.4%.
Last year, Schwab’s stock faced pressure due to concerns about cash sorting, where clients moved funds from low-yielding sweep accounts at Schwab’s in-house bank to higher-yielding alternatives like money market funds. Although these funds remained within Schwab’s platform, the cash sorting exerted pressure on earnings, as the firm had to rely on short-term borrowings when deposit outflows exceeded its available cash. As a result, analysts and investors have been closely watching Schwab's earnings reports for signs of progress in paying down these borrowings.
On Wednesday, Schwab reported that transactional sweep cash levels ended July at $371.8 billion, a decrease of about 1% compared to June 2024. The company noted that the combined month-over-month decline in bank sweep deposits and broker-dealer cash balances was less than $1 billion.
William Blair analyst Jeff Schmitt viewed the slowdown in cash sorting as a positive indicator for Schwab. “Looking ahead, we believe that sweep cash is nearing stabilization as sorting continues to decrease, and with the potential for the Fed to begin easing,” Schmitt wrote. “This should enable a more aggressive paydown of short-term funding as we approach year-end, leading to higher net yields and an inflection in earnings.”
