BOSTON (AP) — Discount broker and retirement plan provider Charles Schwab Corp. is expected to offer insight into whether it's overcoming a recent slump in trading activity by its clients when it reports its second-quarter earnings before the markets open Monday.
WHAT TO WATCH FOR: Trading activity is a key source of revenue for the San Francisco-based company, and that activity has been slumping amid a recent pause in a two-year bull market. The Standard & Poor's 500 stock index slipped 0.4 percent as disappointing jobs and manufacturing data led many economists to scale back their already-modest growth projections for the year.
Schwab reported a 23 percent drop in the number of trades by its clients in May, compared with the same month a year earlier. Clients' daily average trades slipped 1 percent in April, and May's figure was down nearly 23 percent from a recent peak in January. The trend has been consistent with a spring decline in trading volume on financial exchanges.
Schwab and other investment managers also could take a revenue hit from investors' recent shift out of stock mutual funds. A net $17.3 billion was withdrawn from U.S. stock mutual funds in June, the biggest monthly flow out of those funds since March 2009, industry consultant Strategic Insight said last week.
Shares of Schwab have fallen nearly 13 percent this year, and are down nearly 24 percent from a 52-week high of $19.69 reached in mid-February. The stock closed at $15.01 on Friday.
Investors on Monday will also be watching for updates on Schwab's acquisitions, the biggest a plan to buy online brokerage OptionsXpress for $1 billion. That deal is aimed at capitalizing on the profitable business of options trading. When it was announced in March, Schwab expected the transaction to close in the third quarter.
Schwab has also been expanding its business in exchange-traded funds, launching new ETFs, or baskets of stocks, bonds or commodities that can be traded like stocks during daily trading sessions. Last year, it bought Windward Investment Management Inc. for $150 million in stock and cash. Windward, based in Boston, is an advisory firm that focuses on ETFs, which have attracted investors far more rapidly in recent years than mutual funds.
Last week, Schwab said it was expanding its global investment offerings through a strategic relationship with Broadridge Financial Solutions, which provides securities transaction processing, clearing and settlement services. Schwab did not disclose terms of the collaboration.
WHY IT MATTERS: Schwab's broad range of investing and financial services makes it a closely watched barometer of investor sentiment. The company has 7.9 million client brokerage accounts, 1.5 million corporate retirement plan participants, and 794,000 banking accounts. Total client assets were $1.4 trillion as of May 31.
WHAT'S EXPECTED: Analysts expect Schwab to report adjusted earnings of 19 cents per share on revenue of nearly $1.19 billion for the second quarter, according to FactSet.
LAST YEAR'S QUARTER: Schwab reported adjusted net income of 17 cents per share on revenue of $1.08 billion.
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