Charles Schwab Corporation (SCHW) stock has dropped roughly 16% since it released its 2nd quarter report earlier this week. On the other hand, 2nd quarter reports boosted the stock price of big banks like Goldman Sachs, JPMorgan Chase, Bank of America, and Morgan Stanley. Surprisingly Schwab beat diluted earnings per common share forecasts coming in at .73 whereas analysts expected .72 per share. Though the volatility of future earnings and missed expectations caused the stock to fall despite beating eps forecasts.
Schwab announced after it released its earnings report that it plans on decreasing the size of its customer deposits so that it reduces its capital requirements. It will achieve this by using its subsidiaries and Schwab’s upper management said that they are doing this to “protect the economics we’re able to generate from owning a bank.” This move concerned investors and caused them to question the future growth potential of Schwab. Along with shrinking the bank the CEO said that this plan would also cause higher earnings volatility in the future. Also contributing to the decrease in stock price was Schwab’s new brokerage accounts missing expectations. They added 985,000 new accounts, which is up from last year’s 960,000 during the second quarter but fell short of analysts' expectations of 1.04 million.
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