Why Charles Schwab Stock Just Dropped 9%

Core Viewpoint - The Charles Schwab Corporation's stock price has declined despite beating analyst forecasts for Q2 earnings, primarily due to concerns over its strategy to shrink its banking business and the implications for future earnings volatility [1][2]. Group 1: Earnings Performance - Schwab reported a profit of $0.73 per share on sales of $4.69 billion, exceeding analyst expectations of $0.72 per share on $4.68 billion in sales [1]. - However, the company's GAAP earnings were only $0.66 per share, which, while $0.02 better than the previous year, is significantly lower than the pro forma figure [2]. Group 2: Strategic Changes - CEO Walt Bettinger announced a plan to hold more customer deposits off-balance sheet to reduce regulatory capital requirements, indicating a strategic shift in the banking business [2]. - This move is expected to lead to increased earnings volatility in the future, raising concerns among investors [2]. Group 3: Valuation and Growth Prospects - Schwab's stock is currently valued at 28 times earnings with a projected long-term growth rate of 26%, which may appear attractive [3]. - However, if earnings continue to grow slowly, as indicated by a mere 3% year-over-year growth in the last quarter, the current valuation may not be justified [3].