Why Schwab Won't Benefit From Interest Rate Cuts

Core Viewpoint - The Federal Reserve's recent interest rate cut is expected to negatively impact Charles Schwab's profitability, as the company's primary revenue source is net interest income, which thrives in a high-interest-rate environment [1][2][3]. Company Analysis - Charles Schwab's largest revenue source is interest income, accounting for nearly 50% of total revenue, which is unusual for a brokerage firm [2][3]. - The company's net interest revenue peaked in late 2022 and has since declined, with Q2 2023 net interest revenue at $2.16 billion, nearly 30$9.74 trillion as of August [5][6]. - While a portion of these assets may not generate immediate recurring revenue, they represent potential future monetization opportunities [6]. Long-term Outlook - Schwab is considered a solid long-term holding, but the near-term outlook appears bleak, suggesting that less patient investors may want to explore other options [7].