What Happened
Charles Schwab (SCHW -0.40%) had a terrific 2021 as its stock price rose 58.6% last year, according to S&P Global Market Intelligence.
The financial services giant doubled up the S&P 500, which returned 26.9% in 2021. Schwab is currently trading at about $97 per share, up about 6% thus far in 2022.
Image source: Getty Images.
So what
It was a good year in general for the financial sector as it returned about 37%. But Schwab outperformed most in the sector, including its competitors, Morgan Stanley (MS -1.38%), Goldman Sachs (GS -0.71%), and JPMorgan Chase (JPM 0.15%).
Schwab had posted $4.6 billion in revenue in the third quarter and a record $1.5 billion in net income -- a 119% increase year over year. Through the first nine months of 2021, Schwab had $13.8 billion in revenue, up 84% over the previous year, and $4.3 billion in net income, up 98% from the previous year. Overall, Schwab has $7.6 trillion in client assets as of Sept. 30, up from $6.7 trillion at the start of 2021.
The gains were helped by the acquisition of TD Ameritrade, which Schwab acquired in late 2020. Overall, through the first nine months of 2021, Schwab opened more than six million new brokerage accounts. For the past four quarters, it has added at least one million new brokerage accounts. Schwab, the original discount broker, has been able to adapt to the times, becoming the first major broker to implement zero commissions a few years ago.
The company has fully embraced the democratization trend of investing brought on by online brokers like Robinhood (HOOD -1.10%) and has thrived, introducing programs like "stock slices," or fractional shares investing, and its most recent program, the Schwab Starter Kit, introduced in December, that provides beginner investors with $50 to split across the top five stocks in the S&P 500.
Now what
Schwab makes most of its revenue through interest income, generating about $5.9 billion of its $13.8 billion through the first nine months. Asset management fees are next at $3.2 billion through the first nine months of 2021, followed by trading revenue at $3.1 billion, and bank deposit account fees at $1 billion.
Schwab has also acquired some asset managers, including the investment management business of United Services Automobile Association (USAA) and Wasmer, Schroeder, & Company, to further diversify its revenue.
Schwab is the largest brokerage firm in the country and as it further integrates the TD Ameritrade acquisition, it should continue to lead the market. Also, with so much of its income coming from interest, Schwab would stand to benefit in a rising interest rate environment in 2022.
