Charles Schwab Corp (SCHW.US) Q4 earnings call: Still planning to launch spot trading for Bitcoin and Ethereum in the first half of the year.

Recently, Charles Schwab Corp (SCHW.US) held its FY25Q4 earnings call. The company's management mentioned that they still plan to launch spot trading for Bitcoin and Ethereum in the first half of 206; and will roll out high-touch trading services for bulk transactions in Q1. In terms of alternative investments, the acquisition of Forge is expected to be completed in the coming months and is seen as a potential driver to attract high net worth clients and enhance asset aggregation. Schwab stated that growth in 2025 is accelerating across all lines, with net new assets reaching $519 billion, a 42% increase year-over-year. Retail side saw a growth of about 33%, while the adviser side slightly higher at around 42%, with strength on both ends. The highlight on the retail side is the broader coverage: the company is attracting young customers, active traders, long-term holders, and retail high net worth clients. The average age of the company's customers has decreased by about 10 years over the past decade, now in their 40s; and about 1/3 of new customers who joined the company last year are from Gen Z. In terms of business assumptions, the company believes that the momentum from 2025 will continue into 2026, with strong new account openings and organic core net new asset growth of about 5%. Considering the high trading volume in 2025, the company allows for a slight decrease in trading volume in 2026, with an average daily trading volume of around 7.4 million transactions, closer to the early levels of 2025. Under the above assumptions, the CFO provided the 2026 core financial guidance: total revenue is expected to increase by approximately 9.5%-10.5% year-over-year. Net interest-wise, the company expects the full year net interest margin (NIM) to be in the range of 2.85%-2.95%, and even assuming an additional 50bp drop in the federal funds rate during the year, the average NIM for Q4 of 2026 is still expected to be above 2.9%. Interest-earning assets are expected to grow slightly year-over-year, primarily based on loan repayments and supplements on the banking side. Q&A: Q1: How will the balance sheet evolve next? What is the focus of asset reallocation after normalizing supplementary financing? Will the securities portfolio grow, when, and what scale and duration are we looking at? A1: The company confirms that they have actively repaid additional borrowings in 2025. Going forward, the focus will be on driving growth from the asset side: with strong loan momentum in 2025, the company will continue to seek robust lending opportunities in 2026, including on the banking side and in financing transactions, so loan growth is expected to continue. As funds become available after repaying additional financing, the company will continue to support loan growth and have space to reinvest in the securities portfolio. The securities portfolio serves two purposes, one being as a liquidity reserve, so the allocation will maintain high liquidity; most funds will be invested in U.S. Treasuries, with a primary focus on short duration, possibly complemented by a small amount of high-quality ABS, but the core remains government bonds. In terms of duration, the company reaffirms that the overall duration of the securities portfolio is in the range of 2-4 years, and new government bond allocations will focus on the short end of the curve. Overall, the company is satisfied with the evolution of its balance sheet, believing that the current pace can both support customer needs and contribute to future profit growth. Q2: How is the progress of the alternatives platform? Any disclosure on customer engagement and asset size? Can pricing attract new customers or increase asset inflows? A2: The company states that the alternative assets platform is growing and making progress, with positive feedback from clients, especially from higher net worth clients who are delighted. The management places alternative investments within the framework of continuously enhancing services for high net worth clients in recent years. This includes offering tax-related services, advanced portfolio management capabilities, hiring experienced wealth advisors, and plans to allow select clients to directly purchase individual private equity shares in the future through the Forge acquisition. The company believes that this set of capabilities can help drive net new assets, attracting new clients to Schwab and encouraging high net worth clients to consolidate their alternative assets back into Schwab. The management expects that over time, this suite of capabilities will help drive net new assets, both bringing in new clients to Schwab and encouraging high net worth clients to consolidate their alternative assets they may have allocated elsewhere back into Schwab for greater focus. Q3: Why has recent growth accelerated? What are the trends and expectations for Advisor Services vs. Investor Services? How will the focus on high net worth clients affect Investor Services? A3: The company states that growth is accelerating across all lines: net new assets reached $519 billion in 2025, a 42% increase year-over-year. The retail side saw growth of around 33%, while the adviser side slightly higher at around 42%, with strength on both ends. The highlight on the retail side is the broader coverage: the company is attracting young customers, active traders, long-term holders, and retail high net worth clients. The average age of the company's customers has decreased by about 10 years over the past decade, now in their 40s; and about 1/3 of new customers who joined the company last year are from Gen Z. Therefore, the management emphasizes that customer acquisition and engagement strategies are closer to younger demographics (such as spreading the concept of compounding, saving, and investing through channels like TikTok, Instagram, YouTube). Looking ahead, potential "accelerators" for net new assets on the Investor Services side include: 1. Full rollout and asset transfer capability once the crypto business is fully launched, with existing clients who previously held crypto on external platforms potentially bringing their assets back. 2. Growth from the workplace business will bring additional asset inflows. 3. Continued expansion of branches and financial advisors, as having an exclusive relationship significantly accelerates net new assets, with the aim of playing a stronger "financial management" role in clients' lives and further consolidating assets. On the Advisor Services side, the company describes it as having significant competitive advantages on multiple fronts: scale, breadth of capabilities, continuous optimization of custody products, consultancy and professional support for advisers, and service capabilities to support advisers' drive to independence, making it difficult for competitors to match, ensuring strong organic growth (the business had organic growth of about 6.5% last year), with further room for acceleration and growth in the long term. Q4: Lending is a key growth area, what level of reasonable penetration rate can existing clients reach in the next few years? A4: The company believes that there is still significant room for growth in lending, not just with existing products, but also potentially considering new products in the future. For example, with the pledged asset line (PAL), the penetration rate among retail UHNW clients is currently only about 9%, but the management believes it could be significantly higher, as it is a convenient and user-friendly borrowing method for clients. Additionally, clients at Schwab can access competitive rates when borrowing against their assets, and this also drives assets toward securities, which is a win-win. For the adviser/RIA side, based on feedback from many advisers, one of the most common requests is for Schwab to provide more banking and lending services. The company states that PAL is a good starting point, with a penetration rate already at 23% and expected to continue to rise; more importantly, in the coming years, they will explore more ways to provide banking and lending services to RIAs' clients. The company explains that RIAs' fiduciary responsibility and independence are important reasons for their share growth, but in competing with comprehensive brokerages, they also need stronger banking capabilities, where Schwab is naturally seen as a provider. The company also cites an 85% increase in PAL originations in the past year to showcase momentum, emphasizing that their journey towards becoming more bank-like has just begun. Q5: How should we understand the capital return for 2026 and beyond? What are the assumptions for buybacks in the 2026 performance scenario? A5: The Company clearly states that the 2026 scenario presented does not include buybacks. The capital management framework remains unchanged: Capital is first used to support long-term growth and customer needs in the core business, then opportunely returned to shareholders in various forms. Regarding dividends, the company still uses a reference range of 20%-30% of GAAP earnings for payouts. The company also states that they will evaluate several options for the disposal of preferred securities this year (redemption, retention, or replacement), depending on the desired capital structure shape. Regarding buybacks, the company does not have a fixed path; they emphasize that capital allocation will be based on a combination of capital ratio position and business growth needs. However, with strong profit momentum, the company has a positive attitude towards returning capital in various forms in 2026. Q6: Tax-advantaged investment strategies have rapid growth but lower margins; can further penetration be achieved through the RIA channel? How is the balance between returns and the opportunity on the balance sheet? A6: The company views this strategy as a tactical tool for advisers targeting high net worth clients, aimed at enhancing returns through a combination of long and short positions. The management acknowledges that using this strategy can boost net interest income (NII) but at a lower ratio; they emphasize that from the company's perspective, this is about providing service, and it does not gross up the asset size on the balance sheet, with revenue generated through service fees. This strategy is also seen as meeting multiple client needs, including tax optimization and reducing concentration risk. The company expects this business to continue to grow in 2026. They further emphasize that this capability is not just a single product but an entry point for deeper wealth relationships: when clients have significant concentrated holdings or tax benefit management needs, it leads to broader wealth conversations, supporting fee-based revenue growth in wealth business, and aligning with the company's strategy of deepening relationships and increasing customer satisfaction. Q7: How does the company view market forecasting products? Will the company go live with more "investment-related" contracts if market demands evolve? How is customer feedback? Why not engage in sports betting? A7: The company provides two evaluation principles: customer-centricity and integrity in helping customers achieve financial goals. Based on this, the company is open to market forecasts related to portfolio construction, such as those related to employment, inflation, or potentially evolving into positions on the future of a specific asset class, as long as there is customer demand, the company will provide. However, current observations show that demand for such products is not high: the company has not found prediction markets to be a high priority among active trading clients and points out that about 95% of trading volume observed in the industry is related to sports betting, not to the investment attributes of so-called "prediction markets". The company states that they will continue to monitor and provide such services if customer/industry interest increases in the future. On the other hand, the company explicitly states that it will not engage in gambling activities because it conflicts with their mission of helping customers grow, protect, and manage their wealth; and data shows that the percentage of customers who ultimately profit and exit betting platforms is very low (less than 5%), so they leave such businesses to specialized gambling platforms. Q8: What is the profit margin guidance for 2026? Where are the quantifiable revenue or efficiency improvements from AI? What key KPIs should be monitored? A8: The company believes that profit margin growth comes from a combination of "diversification of revenue + balanced cost management" and not chasing a fixed ceiling. On one hand, by offering a more extensive suite of products, customers are encouraged to use more deeply, leading to better revenue diversification and resilience; on the other hand, while focusing on strategic areas, the company also invests in efficiency to maintain low-cost services, both combined to create operational leverage that supports margin expansion. The management states that they may continue to expand in the future, but there is no predetermined hard upper limit. Regarding AI, the company emphasizes that the current benefits seen are more evident in efficiency: by using AI in customer service, they can control the increase in client-facing reps while growing customer accounts and assets, demonstrating productivity improvements. They plan to continue expanding the use of AI in technology and services. External key metrics to track include EOCA (expense on client assets) and cost per account, with a focus on maintaining and further decreasing service costs. (Apologies for the lengthy response, but I wanted to ensure the complete translation of the text. Let me know if you need any more information or if there is anything specific you would like to ask).