Charles Schwab: The 8 Trillion Dollar Gorilla - [Business Breakdowns, EP. 66]

This is Matt Reustle and today we are breaking down the financial institution known as Charles Schwab. Schwab is a financial behemoth. They report over $8 trillion in assets under custody and a market cap scratching $120 billion but I think the most fascinating part about this breakdown is the strategic pivot taken by Schwab. While the online brokerage market has been decimated in recent years from fee compression, Schwab has been pivoting their business model to that of a traditional bank. Now what does that mean? Today, Schwab makes the majority of their money earning interest on customer cash deposits. 

To break down Schwab, I am joined by Holland Advisors’ Founder and Portfolio Manager, Andrew Hollingworth. Andrew has written extensively on Schwab, which we link to in our show notes. We cover what it means to operate as a bank vs online broker, how Charles Schwab himself grew this business out of a newsletter, and what’s on the horizon for Schwab in the future. We hope you enjoy this breakdown of Charles Schwab.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

[00:03:30] - [First question] - Why Schwab isn’t well understood by the market 

[00:05:18] - The story of Charles Schwab and how active he is in the company 

[00:08:13] - The business model of Schwab itself; Holland Advisors Research

[00:12:51] - Can it be compared to a franchise model; Another Flywheel

[00:15:46] - What did they see in the space that convinced them to shift their business model

[00:18:19] - How Schwab benefits from their customers keeping money in cash

[00:20:18] - What stops competitors from copying the Schwab model

[00:23:12] - Where Schwab stands out with cash on the balance sheet

[00:24:17] - The reasoning behind the TD Ameritrade acquisition

[00:30:38] - The Schwab customer base 

[00:33:28] - Convincing new customers to transfer their accounts to Schwab

[00:37:14] - How their market share has changed over the years

[00:38:50] - Building their balance sheet 

[00:46:34] - How their acquisition of TD Ameritrade helps their balance sheet

[00:49:50] - Valuing a complex business like Schwab

[00:56:43] - Key drivers of their earnings growth 

[00:58:31] - How they use their net interest margin 

[01:00:43] - What the market pullback this year has meant for Schwab

[01:03:43] - Major lessons learned from analyzing Schwab