Schwab is one of the largest brokerage firms in the country with over $11T in client assets. Companies like Robinhood (NYSE: HOOD) get a lot of media attention these days, but HOOD has just $280B in assets. Schwab is ~40x bigger.
Schwab operates with three subsidiaries –
Charles Schwab & Co., Inc. (CS&Co), incorporated in 1971, a securities broker-dealer;
Charles Schwab Bank, SSB (CSB), the principal banking entity; and
Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and for Schwab’s exchange-traded funds (Schwab ETFs).
In 2020, Schwab acquired TD Ameritrade for $26B, almost doubling client assets.
Schwab breaks down their revenue into three buckets -
Net interest revenue (NIR)
Asset management and administration (AMA) fees, and
Trading revenue
In this post, I’m going to dig into each of these buckets to make a guess at revenue and net income five years from now. Here is the model you can use to put in your own assumptions.
Net Interest Revenue
Let’s start with net interest revenue, which is by far the largest component of revenue. In 2024, this was $9B vs $6B from AMA and $3B from trading.
Here’s a description from Schwab on how they earn this revenue -
Schwab’s primary interest-earning assets include cash and cash equivalents; cash and investments segregated; margin loans, which constitute the majority of receivables from brokerage clients; investment securities; and bank loans. Schwab’s interest bearing liabilities are comprised of bank deposits, which include brokered CDs issued by CSB; payables to brokerage clients; payables to brokers, dealers, and clearing organizations; FHLB borrowings, other short-term borrowings (e.g., commercial paper, repurchase agreements, other secured borrowings); and long-term debt. Schwab deploys the funds from these sources into the assets outlined above. Net interest revenue also includes amounts earned and expenses incurred on securities lending and borrowing activities conducted by our broker-dealer subsidiary using assets held in client brokerage accounts.
As Schwab builds its client base, we attract new client sweep cash, which is a primary driver of funding balance sheet growth. We do not use short-term, wholesale borrowings to support our long-term investment activity, but may use such funding for short-term liquidity purposes or to provide temporary funding as we have in recent years. Non-interest-bearing funding sources include stockholders’ equity, certain client cash balances, and other miscellaneous liabilities. Revenue on interest-earning assets is affected by various factors, such as the composition of assets, prevailing interest rates and spreads at the time of origination or purchase, changes in interest rates on cash and cash equivalents, floating-rate securities and loans, and changes in prepayment levels for mortgage-backed and other asset-backed securities and loans. Schwab establishes the rates paid on client-related liabilities, and management expects that it will generally adjust the rates paid on these liabilities at some fraction of any movement in short-term rates. Interest expense on long-term debt, FHLB borrowings, other short-term borrowings, and other funding sources is impacted by market interest rates at the time of borrowing and changes in interest rates on floating-rate liabilities.
As you can see, this is complex number to model going forward given all the moving parts. One simplistic way to look at this is from a historical perspective, using NIR as a percentage of client assets. Over the last six years (ignoring 2022), Schwab’s NIR has averaged 0.11% of client assets. I ignore 2022 because it created an unusually good NIR environment, where deposit costs had not yet increased, but yields on cash had improved dramatically.
Now that Schwab’s clients are used to earning a return on their cash, the days of 13bps to 18bps (of total client assets) of NIR are over. I therefore model 11bps of NIR on a go forward basis.
This could of course be wrong. If there’s a dramatic steepening of the yield curve, maybe there is more NIR upside than I’m projecting.
The other question is how do client assets grow over the next 5 years. I assume about $300B a year in new client assets (in the same ballpark as 2023-2024) and a 7% CAGR on existing assets. 7% is about the average long term return of a 60/40 portfolio. See here.
Given how frothy the market is currently, I do assume a 5% drawdown in client assets from here to 2026.
Another way to look at this is to dig a little deeper into the existing asset / liability yields. In 2024, Schwab paid an average of 1.23% on bank deposits. In the first 6 months of this year that is already down to 0.64%. Deposit prices can’t go much lower, so I think in the short term they will at most pick up $500m of NIR from cheaper liabilities (mostly from paying off their FHLB loan). On the asset side, cash yields are coming down as the fed cuts rates, but about $40B of their AFS and HTM assets are re-pricing each year, picking up 2% in yield. That’s a $800M pickup each year. This would exactly offset a 1% drop in cash yields for the next year. In summary, I expect only about a 5% increase in NIR next year, followed by 7% growth each year till 2030 driven almost entirely by the 7% growth in assets.
AMA Fees
Retail asset management is a brutally competitive business. Vanguard keeps lowering fees on ETFs and the competition for ‘managed’ accounts is intense with Fidelity, Morgan Stanley, Merrill Lynch, Citi and others all vying for clients assets. Of the $6B in revenue in 2024, $1.5B came from Schwab’s 27bp fee on 500B in money market assets. To the extent that rates go down and money moves out of money market funds into equities or bonds, Schwab could actually see these fees go down.
Schwab has shown stickiness in this business with managed assets increasing steadily over the last 3 years. However, the tailwind from fees on money market assets is gone, so I model growth at half the rate of the preceding 5 year average.
Trading
Revenue per trade has dropped consistently since 2021. It was 8% lower YoY in 2024 and 10% lower QoQ in the latest quarter. The saving grace is that the number of daily average trades has exploded - up 9% in 2024 and a whopping 38% QoQ in the latest quarter. The latest quarter feels like bull market froth to me. I model 3% growth in trading revenue out to 2030 after an 8% drop next year. Maybe that’s too punitive in a cutting cycle, but I think 2026 could end up like 2022, where there is a market correction. The difference today is the fed is easing, so maybe the drop is more like 5%.
Either way, trading revenue barely moves the needle on total revenue.
Expenses
I’m assuming Schwab will show strong expense discipline over the next five years, given the likely anemic revenue growth. See the model for detail.
Conclusion
Adding this all up, my best guess for NI is ~$11B in in 5 yrs. At a 20x multiple, assuming $5B in capital returned each year, this is 8% CAGR. Not terrible, but certainly not worth buying in size.
If the yield curve steepens and Schwab earnings more in interest on their assets, I could see a scenario where they are making closer to $13B in NI in 5 years. In that case, assuming the same 20x multiple, you’d get a 12% CAGR.
In may ways, Schwab is just a play on US equity markets. In bull markets, they do well as margin loans, trading and assets all grow. In down markets, all the positives go into reverse.
Notes
Management. Rick Wurster is the 3rd CEO in the company’s history. The first was Charles Schwab himself and the second, Walt Bettinger, was CEO from 2008 to 2024.
Regulation. There was a proposal in 2023 to force brokers like Schwab and Robinhood to gather quotes as opposed to just selling order flow. This got nixed under the current administration, but if it were to pass into law in the future, it would certainly hurt trading revenue. See 4 and 5 from this list - https://www.regulatoryandcompliance.com/2025/06/sec-formally-withdraws-fourteen-rule-proposals/