Charles Schwab, a leading brokerage and wealth management company, has started implementing employee layoff measures as part of its ongoing cost-cutting initiative. Despite this news, the company’s stock (ticker: SCHW) experienced a slight increase of 0.27% during early trading on Tuesday. However, it is important to note that the stock has faced significant challenges this year, primarily due to concerns related to bank deposit outflows, rising expenses, and the loss of some TD Ameritrade customers and financial advisors. As a result, Schwab’s stock has declined by 39% in 2020.
In August, the company announced its plans to shut down certain offices and reduce staff in order to achieve an annual cost savings of $500 million. These savings are in addition to the cost reductions expected from Schwab’s acquisition and integration of TD Ameritrade, one of its rivals.
Regarding the layoffs, a spokeswoman for Schwab emphasized that the focus is primarily on eliminating complexity and reducing costs within non-client-facing areas of the organization. While acknowledging the personal impact that these changes have on employees, she emphasized that these measures are crucial to maintaining Schwab’s competitiveness and efficiency moving forward. The company’s top priority is ensuring that all employees are treated with care and respect during this challenging time. As a result, Schwab will refrain from providing further comments in order to respect the ongoing notification process.
Schwab Lays Off Employees Following Transition from TD Ameritrade
Schwab, a leading financial services company based in Westlake, Texas, has initiated layoffs affecting both long-time Schwab employees and former TD Ameritrade staff members. The exact number of employees impacted by the layoffs has not been disclosed.
The decision to downsize comes after Schwab successfully migrated the majority of its advisors and clients from TD Ameritrade’s platform to its own. However, some advisors have encountered technical difficulties and other issues during the transition, particularly over Labor Day weekend. Despite these challenges, Schwab remains the largest custodian of assets for independent advisors, with 54% of RIA assets as of 2021 (according to Cerulli Associates). Its main contender, Fidelity, holds 22% of RIA assets.
Charles Schwab boasts an impressive $7.8 trillion in assets under its management, serving both retail investors and advisors.
One factor impacting Schwab’s performance is cash sorting, whereby customers transfer uninvested cash from low-paying sweep accounts to higher-paying options like money market funds. Although this process does not necessarily lead to a loss of funds on Schwab’s platform, excessive outflows can strain the company’s available cash. As a result, Schwab may resort to costly short-term borrowings to bridge the gap.
In the third quarter, net interest revenue took a hit, decreasing by 24% compared to the previous year and amounting to $2.2 billion. This decline was primarily due to higher interest expenses, as reported in the company’s earnings report. Additionally, Schwab experienced a 16% drop in revenue, reaching $4.6 billion, while adjusted net income plummeted by 31% to $1.5 billion.
