Charles Schwab Is Looking Ripe

Discount-broker-turned-major-banking-player Charles Schwab (NYSE: SCHW  ) is suddenly looking very attractive. After being in the news for a recent acquisition, it has now posted an impressive first-quarter 2011 earnings report. Across the board, the bank is looking pretty strong.

Great financials
Schwab's net income leaped to $243 million from $6 million in the first quarter of 2010, more than just a bit of which was owed to the fact that its total client assets reached an all-time high of $1.65 trillion at the end of the same period -- an increase of 10% on a year-on-year basis. Net revenues grew to $1.2 billion from $978 million in the corresponding period last year, driven by growth in net interest revenue, asset management, and administration fees. The company's total interest-earning assets also went up by 24.7% to $90.13 billion compared to the preceding year.

On top of a pretty great year, the company continues to look ahead. The discount brokerage intends to increase investment on client-related initiatives by 40% over the last year to secure its business in areas such as fixed-income, global investing, mobile and tablet solutions, and advisor-focused technology. I like what I see here and foresee momentum developing in the coming year.

No small part of this momentum has come off the heels of bigger banks and brokers like Citibank (NYSE: C  ) and Bank of America (NYSE: BAC  ) that have been busy shoring up their own finances and have lost focus on their customers. While the big banks are raising fees on consumers and figuring out novel ways to charge them, Schwab is actually lowering fees for a host of its services. Consumers have noticed.

Smart acquisition
Last month, I had pointed out the sensibility of acquiring derivatives specialist optionsXpress (Nasdaq: OXPS  ) in my article "optionsXpress Is a Very Attractive Option." I would like to elaborate a bit more on the benefits of the acquisition, this time from Charles' point of view. The deal, I think, will surely prove fruitful for Charles as it can use the former's options and futures trading to meet the demands of its retail investors and result in an increase in trading of derivatives from the retail customer. optionsXpress has been registering a strong performance and is outperforming other option players like TradeStation (Nasdaq: TRAD  ) and FXCM (NYSE: FXCM  ) .

The Foolish bottom line
Charles' strong metrics definitely paint a healthy picture of the company. The growth in all three major components of its revenue complemented by a decline in costs is definitely a good sign for prudent investors who evaluate companies on the basis of rock-solid fundamentals. I like what I see here.

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Fool contributor Zeeshan Siddique does not own any of the stocks mentioned in the article. optionsXpress Holdings and Charles Schwab are Motley Fool Stock Advisor selections. The Fool owns shares of Bank of America and TradeStation Group. Through a separate Rising Star portfolio, the Fool is short Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On April 20, 2011, at 12:51 PM, TimothyVR wrote:

    I have Schwab in my portfolio and I have no intention of selling, but I am not adding any more shares until they increase their dividend.

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