Charles Schwab’s stock rises as company says clients are moving cash into higher-yielding alternatives more slowly

While Charles Schwab
SCHW,
+5.44%
fell shy of revenue estimates and beat its earnings mark, Wall Street focused on its comments on sweep deposits, in which excess funds are channeled into an higher-earning account.

Schwab’s stock rose by 5.4% on Monday.

Overall, Schwab said cash-realignment activity slowed further, with bank sweep deposits moving up after having dropped since March 2022.

Schwab said September net outflows from transactional cash were lower than in any prior month in recent quarters.

“For the first time since the Fed began raising rates this cycle, our clients added net new cash to their bank sweep holdings,” the company said.

KBW analyst Kyle Voigt said the cash-balance commentary around sweep deposits would likely drive stock performance on Monday.

“Commentary on sweep cash changes month-on-month seem to suggest a good deceleration,” Voigt said.

Schwab said its third-quarter net income dropped to $1.02 billion, or 56 cents a share, from $1.88 billion, or 99 cents a share, in the year-ago period. Excluding nonrecurring items, adjusted earnings per share of 77 cents beat the FactSet consensus of 74 cents.

Revenue declined 16.3% to $4.606 billion, below the FactSet consensus of $4.615 billion.

Net interest revenue fell 23.5% to $2.237 billion, to beat the FactSet consensus of $2.218 billion, while asset-management and administration fee revenue rose 16.9% to $1.224 billion, in line with expectations, and trading revenue was down 17.4% to $768 million, to miss expectations of $804 million.

New brokerage accounts were flat from a year ago but down 7% from the sequential second quarter.

The stock declined 12.3% over the past three months through Friday, while the S&P 500
SPX,
+1.05%
slipped 3.9%.