(Reuters) – U.S. brokerage firm Charles Schwab reported a smaller-than-expected drop in second-quarter profit on Tuesday as a jump in asset management fees helped soften the hit from a decline in interest revenue.
The company relies primarily on clients’ uninvested cash to fund its interest-earning businesses such as purchase of fixed-income assets and lending.
However, some clients have been moving cash to alternatives that fetch better returns to make the most of a high-interest rate environment following hefty rate hikes by the Federal Reserve to rein in sticky inflation.
Schwab has had to turn to supplementary funding sources to counter this churn. Last month, the Westlake, Texas-based company said it was relying on more expensive funding sources, like borrowing from the Federal Home Loan Bank, to supplement its cash flow.
This weighed on Schwab’s net interest revenue. It tumbled 10% to $2.29 billion in the second quarter.
Meanwhile, inflows into the company’s funds boosted asset management and administration fees by 12% to $1.17 billion.
The report comes during a banks-heavy earnings week when investors will be scrutinizing updates for any sign of lingering trouble after the crisis earlier this year rattled the industry.
Excluding one-time costs, Schwab’s profit fell 25% to $1.49 billion, or 75 cents per share, for the three months ended June 30. Analysts had expected 71 cents per share, according to Refinitiv IBES data.
(Reporting by Niket Nishant in Bengaluru; Editing by Sriraj Kalluvila)
