Brokerage Charles Schwab's profit falls on weaker interest income

(Reuters) -Charles Schwab's second-quarter profit fell 2% as the brokerage paid out more interest on client deposits and its own borrowings, sending its shares down 7.1% on Tuesday.

WHY IT'S IMPORTANT

With the U.S. Federal Reserve maintaining higher interest rates, companies such as Charles Schwab have been paying more interest on deposits.

The company recorded a rise in fees, however, partially offseting the hit to profit from the interest expenses.

BY THE NUMBERS

The Westlake, Texas-based company's total client assets rose 17% to $9.41 trillion in the three months ended June 30, compared with $8.02 trillion a year earlier.

Charles Schwab's net interest revenue fell 6% to $2.16 billion.

Its asset management and administration fees, earned from managing mutual funds and exchange-traded funds, increased 18% to $1.38 billion. Second-quarter net revenue rose 1% to $4.69 billion.

On an adjusted basis, the company posted a quarterly profit of $1.47 billion, or 73 cents per share, compared with $1.49 billion, or 75 cents per share, a year earlier.

Bank deposits at Schwab dropped to $252.4 billion, down 17% from a year ago.

KEY QUOTES

"While deposit outflows have clearly hurt profitability, their steady outflows are not a bank run threatening financial stability," Bespoke Investment Group said in a note.

"Given that cash sorting remained low, further weakness in June appears to be mainly related to clients shifting funds into markets given continued market strength," William Blair analyst Jeff Schmitt wrote in a note.

(Reporting by Pritam Biswas and Medha Singh in Bengaluru; Editing by Shreya Biswas and Devika Syamnath)