Drop in Trading Activity for Schwab - Analyst Blog
15 Junio 2011 - 7:30AM
Zacks
Charles Schwab Corp. (SCHW) released its
Monthly Activity Report for May 2011, recording a 23% drop in
client activity compared with May 2010 and a 9% decline from April
2011. The company’s daily average trades stood at 395,900 during
the reported month. The substantial fall in client activity could
be strongly indicative of investors’ lack of confidence in the
stock market.
Schwab also reported opening of 61,000 brokerage accounts in May
2011, up 3% from May 2010 but down 27% from April 2011. This marked
the slowest trading month since October 2010 when only 60,000 new
brokerage accounts were opened.
However, on a positive note, Schwab registered an increase in
new assets, with a net inflow of $9.4 billion in May. This compared
favorably with a net outflow of $24.8 billion in May 2010 and a net
outflow of 0.5 billion in April 2011. The company’s client assets
totaled $1.67 trillion at the end of May, reflecting a growth of
18% from the prior-year month but a drop of 1% from the prior
month.
At the end of May, Schwab’s clients’ active brokerage accounts
totaled 8.127 million, up 3% year over year but flat with the prior
month. Similarly, clients’ banking accounts climbed 18% year over
year and 1% sequentially to 736,000. However, the number of
corporate retirement plan participants declined 2% from May 2010
but remained flat with April 2011 at 1,436 million.
Schwab’s monthly activity report for May 2011 indicates that
investors are shying away from the equity market as a result of
geopolitical tensions, a weak U.S. economy and the tsunami in
Japan. Although investors pumped in $1.46 billion in money market
funds, they withdrew about $1 billion ($652.9 million from large
capitalization stock and $303.3 million from small/mid
capitalization stock) from the U.S. equity funds.
We believe that raising money market funds will likely hurt
Schwab financially. These funds are less profitable than stock
market funds; and a significantly low interest rate environment
would further force the company to waive fees. However, after the
completion of the acquisition of optionsXpress Holdings
Inc. (OXPS) in the third quarter of 2011, the company’s
top line will expectedly benefit from increased trading in
derivatives. Also, capital spending initiatives will augment
further revenue growth.
Schwab currently retains a Zacks # 3 Rank, which translates into
a short-term “Hold” rating. Also, considering the fundamentals, we
maintain a long-term “Neutral” recommendation on the stock.
OPTIONSXPRESS (OXPS): Free Stock Analysis Report
SCHWAB(CHAS) (SCHW): Free Stock Analysis Report
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