Charles Schwab (SCHW) is poised for further growth after expanding its customer asset base by $172 billion so far this year, despite slower gains in October at both the San Francisco-based firm and rival E*Trade Financial (ETFC) .
Charles Schwab reported net asset gains of $6.1 billion last month, which Argus Research analyst Stephen Biggar described as a "pretty tumultuous" period due to the pending presidential election. "It's not too surprising that people were a bit hesitant to put new money to work," he said in a phone interview.
Total customer assets have increased by $172.9 billion so far this year, according to the company. Charles Schwab is likely to benefit from higher interest rates, Biggar said, and the firm has expanded its market share with low-cost funds and services for independent registered investment advisers. Stock-market growth may add to trading volume, Biggar noted, a sentiment echoed by Morningstar analyst Michael Wong, who said trading activity would rise this month.
Such growth is important in an industry undergoing significant consolidation. Last month, online broker TD Ameritrade Holdings Corp. (AMTD) and its leading shareholder Toronto-Dominion Bank (TD) reached an agreement to buy Scottrade Financial Services Inc. for $4 billion and split it between themselves. The transaction is expected to close by the end of September of 2017. Other recent deals in the sector include E*Trade's acquisition of OptionsHouse parent Aperture New Holdings Inc. for $725 million in September.
Charles Schwab generated revenue of $1.91 billion during the three months through September, a 20% year-over-year gain that was higher than analysts estimated. Morningstar's Wong has projected that the company will double earnings in the next five years as interest rates, held below 1% since the 2008 financial crisis, begin to rise.
Competitor E*Trade, meanwhile, added $200 million assets during October and held a total of $300 billion at month's end. That was 2% lower than the end of September. Commission-generating trades climbed 17% from a year earlier to 168,739, the New York-based firm said.
E*Trade reported $486 million in revenue in the three months through September, higher than analysts' estimates of $471 million.
E*trade has risen 9.9% this year to $32.57, while Charles Schwab has gained 9.6% to $36.10; both have outpaced the broader S&P 500.