Why Charles Schwab’s share price rose 58.6% in 2021

What happened

Charles Schwab (NYSE: SCHW) had a great year 2021 as its share price rose 58.6% last year, according to S&P Global Market Intelligence.

The financial services giant has doubled the S&P 500, which returned 26.9% in 2021. Schwab is currently trading at around $ 97 per share, up around 6% so far in 2022.

Image source: Getty Images.

So what

It was a good year overall for the financial sector as it posted a return of around 37%. But Schwab has outperformed the most in the industry, including its competitors, Morgan stanley (NYSE: MS), Goldman Sachs (NYSE: GS), and JPMorgan Chase (NYSE: JPM).

Schwab reported third-quarter revenue of $ 4.6 billion and record net income of $ 1.5 billion, an increase of 119% year-over-year. In the first nine months of 2021, Schwab achieved revenue of $ 13.8 billion, up 84% from the previous year, and net profit of $ 4.3 billion, up 98% from the previous year. Overall, Schwab had $ 7.6 trillion in customer assets as of September 30, up from $ 6.7 trillion at the start of 2021.

The gains were aided by the acquisition of TD Ameritrade, which Schwab acquired in late 2020. In total, in the first nine months of 2021, Schwab opened more than six million new brokerage accounts. Over the past four quarters, he has added at least one million new brokerage accounts. Schwab, the original discount broker, has adapted to the times, becoming the first major broker to implement zero commissions a few years ago.

The company has fully embraced the trend of democratization of investment induced by online brokers like Robin Hood (NASDAQ: HOOD) and has flourished by introducing programs such as “equity tranches” or fractional stock investing, and its most recent program, the Schwab Starter Kit, introduced in December, which gives first-time investors $ 50 to split between the top five stocks of the S&P 500.

Now what

Schwab derives the bulk of its income from interest income, generating about $ 5.9 billion of its $ 13.8 billion in the first nine months. Asset management fees then arrive at $ 3.2 billion in the first nine months of 2021, followed by trading income at $ 3.1 billion and bank deposit account fees at $ 1 billion. .

Schwab also acquired certain asset managers, including the investment management businesses of United Services Automobile Association (USAA) and Wasmer, Schroeder, & Company, to further diversify its revenues.

Schwab is the nation’s largest brokerage firm, and as it further integrates the TD Ameritrade acquisition, it is expected to continue to dominate the market. Additionally, with a large chunk of its income coming from interest, Schwab would benefit from a rising interest rate environment in 2022.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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