Schwab strives to keep our stockholders and analysts informed of the firm’s bigger financial picture. Hear from our CFO.
Periodically, Peter Crawford, our Chief Financial Officer, will use this forum to provide insight and commentary regarding Schwab's financial picture. For any questions, please contact Investor Relations via email or call: Richard G. Fowler, senior vice president: 415-667-1841
The commentary in this section speaks only as of the date specified below. The company makes no commitment to update any of this information.
June 12, 2020
On May 26, 2020, we completed the acquisition of the assets of USAA’s Investment Management Company, a very important milestone for Schwab, USAA members, and the ~400 employees from USAA who joined our company. Given how much the environment has changed since we last provided specific information on this acquisition, I wanted to give you an update on certain relevant data. The transaction brought to Schwab a total of $81 billion in client assets and 1.1 million accounts, for which we paid ~$1.6 billion in cash. We also entered into a long-term referral agreement that makes Schwab the exclusive provider of wealth management and investment brokerage services for USAA members.
When we announced the transaction back in July 2019, I mentioned to you that this is a win-win-win situation, and our confidence regarding this outcome has only been solidified during the last 10 months of preparation:
- It’s a win for the USAA members who now have access to a broader choice of value-oriented investment products, while continuing to benefit from a client-focused approach for which both USAA and Schwab have been recognized time and time again
- It’s a win for the nearly 400 former USAA employees who chose Schwab as their new home, where they will continue to make a meaningful difference in the lives of investors
- And it’s a win for our stockholders as they realize the long-term financial benefits of the acquisition, as well as the opportunity for increased organic growth via the ongoing exclusive referral arrangement (which is already well underway)
This transaction represents a noticeable increase in our Investor Services footprint, adding to the segment’s asset and account bases by 4% and 12%, respectively1. The make-up of the acquired accounts remains largely in-line with what we shared with you last July:
As shown above, a quarter of the acquired assets are within USAA’s legacy managed account solution (“Managed Money”) and 82% of total client assets are invested in individual equities, ETFs, or mutual funds. Also, as part of the transaction, we successfully transitioned approximately $10 billion in client cash to our balance sheet. We now expect to deploy all of this cash within our bank portfolio in a manner consistent with our overall asset liability management framework and portfolio strategy.
During our most recent Spring Business Update we shared a range of potential financial outcomes for 2020 that included revenue and expense impacts related to the USAA acquisition. Specifically, costs associated with the nearly 400 USAA employees joining Schwab, as well as other transaction or integration-related spend, were incorporated within those expectations.
The $1.6 billion closing purchase price included certain contractual adjustments based on the underlying client assets that ultimately migrated to Schwab. We expect to incur the remaining integration expense of approximately $55 to $60 million over the course of this year, with the majority to be booked during the second quarter. I’d also remind you that starting with the upcoming 2Q20 earnings cycle, we anticipate incorporating select non-GAAP measures into our typical reporting materials.
In addition to the value created by transitioning the existing members who have utilized USAA’s investment management services, what makes this deal so appealing is the opportunity for Schwab to serve as the exclusive wealth management and brokerage provider for USAA on an ongoing basis. Through the referral agreement, USAA members will be referred to Schwab via a combination of integrated digital and live interactions, and have access to the same benefits as our existing clients. With the digital experience as the foundation of the program, we have added custom web content and enabled single sign-on for USAA members, making it easy to see their entire relationship in one place. Live referrals will come via a “warm lead” to a Schwab specialist or, alternatively, through an automated phone experience.
This exclusive brokerage and wealth management referral arrangement is expected to provide additional growth opportunities in two ways2:
To close, we are truly honored to have been entrusted with serving the investing needs of USAA’s current and future members. With less than 10% of the 13 million – and growing – member base currently utilizing investment services, we are excited about the opportunity to help an increasing number of these individuals pursue their financial goals. This ongoing referral arrangement will supplement our strong business momentum and enable us to make the most of this special win-win-win opportunity.
1 Based on Schwab Investor Services segment data as of March 31, 2020.
2 Current membership base and estimated annual gross member growth statistics provided by USAA.
This commentary contains forward-looking statements relating to the USAA transaction, including financial benefits for the company’s stockholders; the growth and penetration of the USAA member base for the exclusive referral arrangement; growth in the company’s client base, client accounts and assets; the deployment of cash; estimated amortization expense; amount and timing of integration expense; and business momentum. Achievement of these expectations and objectives is subject to risks and uncertainties that could cause actual results to differ materially from the expressed expectations.
Important factors that may cause such differences include, but are not limited to, general market conditions, including the level of interest rates, equity valuations, and trading activity; the company’s ability to attract and retain clients and grow client assets; competitive pressures on pricing, including deposit rates; the company’s ability to develop and launch new and enhanced products, services, and capabilities, as well as enhance its infrastructure, in a timely and successful manner; client use of the company’s advisory solutions and other products and services; client sensitivity to rates; the level of client assets, including cash balances; the company’s ability to monetize client assets; capital and liquidity needs and management; the impact of changes in market conditions on revenues, expenses, and pre-tax profit margin; the company’s ability to manage expenses; the implementation of integration plans; the risk that expected revenue, expense and other synergies and benefits from the transaction may not be fully realized or may take longer to realize than expected; client cash allocations and cash sorting; the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities to contain the spread of the virus and the economic impact; and other factors set forth in the company’s filings with the Securities and Exchange Commission, including the company’s most recent reports on Form 10-K and Form 10-Q.
March 13, 2020
With global health concerns relating to COVID-19 weighing on the macroeconomic environment and driving heightened volatility in the financial markets, we thought it might be helpful to spend some time discussing the effects on client activity. Not surprisingly, our clients have turned to us for help in this environment and we’ve been there to support them. Read more >
October 1, 2019
Today, we announced our decision to reduce online trade commissions for U.S. and Canadian-listed equities and ETFs to $0, and to reduce the base charge on options to $0, as well. As noted in the press release, this action is consistent with the principles on which Chuck Schwab founded this company nearly 45 years ago and with the “Through Clients’ Eyes” strategy we have followed ever since then – which have made the Charles Schwab Corporation so successful. Read more >
August 14, 2018
As we announced in our second quarter earnings release, we crossed the $250 billion asset threshold1 for heightened regulatory requirements, ending the period at $262 billion in consolidated assets. While we don't believe the consequences will be disruptive to our business model or our strategy, I wanted to share a brief overview of what crossing this threshold means to Schwab and how we have been preparing over the last few years. Read more >
February 14, 2018
In our January SMART report released today, we noted a $7.2 billion outflow from a mutual fund clearing services ("clearing") client. Since we expect several additional large clearing outflows in early 2018, I wanted to share some context on the business and discuss the potential effect on our reported client asset flows (noticeable) and revenues (immaterial). Read more >
December 22, 2017
Today, President Trump signed significant tax reform legislation into law and I wanted to spend a moment focusing on the potential impacts to Schwab's effective tax rate. As you may know, we have historically paid close to the full statutory federal corporate income tax rate, so the benefits are likely to be significant – though the new law does include the disallowance of some Schwab-relevant deductions. Read more >
February 28, 2017
Today we announced another reduction in our online equity, ETF, and option trade commission rates, following moves we announced just a few weeks ago on February 2nd. With this second action coming right on the heels of the first, I thought it might be useful to share some context regarding how they both fit within our financial planning for 2017. Read more >
January 19, 2016
Those of you who follow The Charles Schwab Corporation closely may receive our quarterly financial results through a wire service/email, a market data aggregator, or simply by checking our corporate website. This morning, we began making our results available via another widely-used platform: Twitter. You can find our page on with the handle @CharlesSchwab. Today's activity includes a Tweet noting the availability of fourth quarter 2015 results with a link to our press release, and follow-ups sharing the headlines from this morning's announcement. Read more >
December 14, 2015
Today we released our November Monthly Activity Report. While we produced another month of solid client metrics, we have no illusions about another press release stealing the show later this week. As you know, the Federal Reserve is widely anticipated to begin raising interest rates on December 16th. We have seen economic and employment reports meet expectations, FOMC minutes evolve, and member speeches show increasing conviction. Read more >
September 15, 2015
We issued our SMART report for the month of August today, and between the client metrics shown there and the trading data that we've already posted it's clear we've been busy. With the elevated market volatility late in the month, our clients made extensive use of our branches, phone-based service centers and online capabilities to help keep their investing on track. Many of them engaged with our financial consultants and subject matter experts to ask questions about how their assets enrolled in our advisory solutions are positioned, as well as assess their holdings and determine what, if any, action should be taken. Read more >
August 14, 2015
By now, you may have noticed that we recently made a few changes to our disclosures, and I'd like to make sure everyone is aware of these developments as well as provide context for how they help tell our story. As a large savings and loan holding company, our required reporting has expanded significantly in recent years. In addition, as Schwab evolves, we revisit our reporting and strive to keep it closely aligned with the everyday workings of the business. In the second quarter of 2015, we added a new Other Regulatory Disclosures tab to our corporate website, made changes to the Asset Management and Administration Fees (AMAF) table in our earnings release package, and included some new information in our 10-Q filing. Read more >
January 16, 2015
As we announced in our earnings release today, our Q4 '14 financial results included two nonrecurring items related to the company's non-agency residential mortgage-backed securities (RMBS) portfolio: net litigation proceeds of approximately $28 million and net losses of $8 million from selling securities totaling approximately $500 million. Taken together, these items increased pre-tax income by approximately $20 million, or $.01 per share. With the financial crisis well behind us, it's been a while since we've needed to discuss these securities, so I wanted to walk through some history and share a perspective on these recent developments. Read more >
October 15, 2014
Concurrent with our Earnings Release today, we are inaugurating a new approach to reporting on our clients' trading activity intra-quarter. We have retired the inclusion of trade reporting in our Monthly Market Activity Report ("SMART") and are now providing a weekly look at trading activity, including revenue, asset-based, and other trades, which is posted on the Investor Relations landing page on . Read more >
July 16, 2014
As you look through today's earnings release, you might notice that the size of our balance sheet (shown in the Financial and Operating Highlights table on page 5) hasn't changed much since year-end 2013, continuing to hover around $144 billion. That's unusual for us–for example, the company's balance sheet grew by approximately $8 billion during the second half of 2013. Given the factors influencing this situation, I wanted to share some perspective on current client behavior and ramifications for our capital management going forward. Read more >
March 31, 2014
As I mentioned in my last post, here are a few more thoughts on the evolution of client behavior during the market recovery, which is now a full five years along: With the S&P 500 up over 170% from its lowest point in the first quarter of 2009 and setting new records, it's not really surprising to see investors put cash back to work in the markets. There are, however, some interesting aspects to the way our clients have reallocated their holdings across products and asset classes during the recovery thus far. Read more >
March 14, 2014
The S&P 500 Index bottomed at 676.53 on March 9, 2009, so we are now a full five years into the market recovery. As the recovery has strengthened in recent months, we have been asked more often about individual investor engagement, with the questioner usually equating engagement with trading activity. Read more >
January 16, 2014
This is my inaugural CFO Commentary. I expect to use this site regularly to provide perspectives on Schwab's financial picture, including color on our performance and details on topical issues. Over time, I can see sharing more significant financial information that might be better discussed in a forum like this, versus press releases or other forms of communication. Read more >
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