# Charles Schwab (SCHW)

Sector: Brokerage & wealth management

| Field | Value |
|---|---|
| Price | $96.70 |
| Fair value (Analysts) | $124.00 |
| Discount to fair value | 22% |
| Fair value uncertainty (Analysts) | Medium |
| Economic moat (Analysts) | Wide |
| LSEG analyst rating (1 strong buy to 5 strong sell) | 1.96 |
| Data as of | 2026-10-12 |
| Next earnings | 2026-10-15 (confirmed) |

## In short

Investors fear that client cash and client loyalty can move away from Schwab, and steady interest margin and asset growth over the next two to three quarters can close the gap.

## Themes and gap

- Themes: Interest rates (interest-rates), AI disruption risk (ai-disruption)
- Gap type: Can close (closable)
- Why: Net interest margin and net new assets show each quarter whether the cash-sorting and AI-loyalty fears are real.

## About

Charles Schwab runs a large brokerage, banking, and wealth management business. Clients hold cash and investments at Schwab. Schwab earns net interest revenue on client cash that it holds on its own balance sheet. It invests this cash in securities and lends it as margin loans and bank loans. Schwab sweeps more client cash to TD Bank under an insured deposit account agreement and earns a fee on these deposits. Schwab also earns asset-based fees on managed portfolios, mutual funds, and advisory accounts, plus trading revenue. In 2025, net interest revenue was about half of total net revenues.

## Thesis

Schwab still trades as if client cash could sort back into money market funds and other higher-yielding places. That is the fear that hit the whole brokerage industry in 2023. That fear has kept fading. Net interest margin rose from 2.86% in the third quarter of 2025 to 3.00% in the second quarter of 2026, and core net new assets keep growing faster than the year before. A new worry took its place in September 2026. Schwab stock fell about 6% in one day on fear that AI assistants built into rival apps, such as Meta's new Muse, could weaken the loyalty that keeps clients on one brokerage's platform. For the first fear to keep fading, Schwab needs net interest margin and net new asset growth to keep showing up in its results. The next test is the third quarter report and the fall business update on October 15, 2026. For the AI-loyalty fear to fade, Schwab needs to show that its own AI tools keep clients and advisors on its platform. These tools include Charley, its assistant for retail clients, and a partnership that brings Claude to more than 16,000 independent advisor firms. The Federal Reserve raised rates in September 2026, and its officials expect one more increase this year. Higher rates help the yield on Schwab's assets, but they also make money market funds more attractive than sweep cash. If both trends keep confirming in the next two to three quarters of earnings, the market's caution looks overdone and the gap can close. If deposit competition or client movement to AI-native tools shows up instead, the discount could persist into 2027.

## Checkpoints

- Oct 15, 2026: Q3 2026 results and fall business update: margin, new assets, client cash. Status: Pending. Watch: Net interest margin at or above the Q2 level of 3.00% and more core net new assets than a year earlier pass; a lower margin or client cash leaving sweep accounts fails.
- Q4 2026 (estimate): Charley AI assistant rollout and advisor AI tools. Status: Pending. Watch: Client asset and account growth that holds up while Charley and the Claude advisor tools roll out pass; slower net new assets or account closures linked to outside AI apps fail.
- Jan 2027 (estimate): Q4 2026 results and 2027 outlook. Status: Pending. Watch: A 2027 outlook with higher net interest revenue and the adjusted Tier 1 leverage ratio near 7% while buybacks continue passes; a lower margin outlook or a pause in buybacks fails.

## Balance sheet

Schwab is a savings and loan holding company. Client money, not borrowed money, funds most of its $517.3 billion balance sheet. At June 30, 2026, bank deposits were $249.7 billion and payables to brokerage clients were $124.0 billion. Schwab invests this money in securities, margin loans and bank loans. Its own long-term debt was $22.7 billion, mostly unsecured senior notes of the parent company at a weighted average rate of 4.17%. It also had $13.9 billion of other short-term borrowings. About $7.4 billion of this was commercial paper, and the rest was bank repurchase agreements and secured credit lines. It also had $0.5 billion from the Federal Home Loan Bank. The parent issued $5.85 billion of new senior notes in May, June and August 2026, for general corporate purposes. Some wholesale funding supported the fast growth in margin loans. Moody's, S&P and Fitch rate these notes A2, A- and A. For liquidity, Schwab had $40.6 billion of cash and $32.8 billion of unused Federal Home Loan Bank capacity. It could also use $28.0 billion at the Federal Reserve discount window. The liquidity coverage ratio was 135%. $33.0 billion of segregated cash and investments belongs to clients by regulation, so it is not free cash. Capital is the real limit. The Tier 1 leverage ratio was 8.7%. With the accumulated other comprehensive loss of $10.6 billion included, mostly unrealized losses on securities, the ratio was 6.8%. This is inside the company's 6.75% to 7.00% target. The company also has $6.2 billion of preferred stock. Future buybacks must come mostly from new earnings. Schwab bought back $3.4 billion of its stock in the first half of 2026 and had about $11.1 billion left of its $20 billion authorization. The securities loss shrinks as bonds mature, so capital room grows slowly over time.

As of 2026-06-30.

Sources:

- https://www.sec.gov/Archives/edgar/data/316709/000031670926000031/schw-20260630.htm
- https://www.sec.gov/Archives/edgar/data/316709/000119312526347083/d42452d8k.htm
- https://www.sec.gov/Archives/edgar/data/316709/000119312526288640/d334556d8k.htm

## Recent events

- 2026-10-07: Schwab common stock started to trade on the Texas Stock Exchange as a second listing. The New York Stock Exchange stays its primary listing.
- 2026-09-30: Schwab announced Charley, a generative AI assistant for retail clients. It will roll out in phases on Schwab.com and Schwab Mobile, starting in October 2026.
- 2026-09-22: Schwab stock fell about 6% in one day. The market reacted to Meta's new Muse AI assistant app, which reached the top of the US App Store within two weeks of launch, on fear that AI assistants could weaken the customer loyalty that brokerage and wealth firms depend on.
- 2026-09-17: Schwab announced its Fall Business Update for October 15, 2026, with CEO Rick Wurster and CFO Mike Verdeschi.
- 2026-09-16: The Federal Reserve raised its benchmark interest rate 0.25 percentage points, to a range of 3.75% to 4.00%, its first increase since 2023. The median projection of Fed officials shows one more increase before the end of 2026.
- 2026-09-15: Schwab reported core net new assets of $64.8 billion for August 2026, up 46% from August 2025. Total client assets were $13.41 trillion at the end of August, up 19% from a year earlier.
- 2026-09-14: Schwab and Anthropic announced that Schwab Advisor Services will bring Claude for Financial Advisors to more than 16,000 independent registered investment advisor firms on Schwab's platform.
- 2026-07-21: Schwab reported Q2 2026 results. Total net revenue was $7.07 billion, a record and up 21% from a year earlier. Net interest margin was 3.00%. Core net new assets reached $62.7 billion in June alone.
- 2026-05-13: Schwab began rolling out direct spot trading in bitcoin and ether to retail clients.

## Risks

- High: Schwab holds a large fixed-income investment portfolio, built up when deposits were high. If the Federal Reserve cuts interest rates faster than expected, yields on this portfolio reprice down before deposit costs fall as much, which can compress net interest margin. The Fed raised rates 0.25 points in September 2026, and the median projection of its officials keeps rates near that level through 2027. A change in this outlook can bring the risk back.
- Medium: A large share of client cash sits in low-yielding bank sweep accounts. If money market fund yields pull further ahead of sweep rates, clients can move cash out of sweep and into higher-yielding funds. This lowers the low-cost deposit base Schwab lends against. Higher Fed rates make this gap larger.
- Low: Schwab now competes directly with other platforms on commission-free trading, crypto trading, and cash yields. Its own crypto trading service only launched in 2026, so it is unproven against established crypto-focused competitors.
- Low: AI assistants built into other companies' apps, such as Meta's Muse, could reduce the friction that keeps clients using a single brokerage's app and tools. The market sold Schwab stock on this fear in September 2026, even with no confirmed change to Schwab's own client or asset numbers.

## Links

- Page: https://picks.kamadorueda.com/company/SCHW/
- History of changes: https://picks.kamadorueda.com/company/SCHW/history/
- JSON with full history: https://picks.kamadorueda.com/data/company/SCHW.json

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