Schwab Earnings Mention MMFs
Charles Schwab made mention of money market funds and cash sweeps briefly in its latest earnings release and earnings call. CFO Peter Crawford comments, "Net interest revenue of $1.6 billion declined 6% year-over-year, due to pressure across the yield curve accelerating late in the quarter, which outweighed the impact of significantly higher levels of client cash sweep balances. Given the rapid accumulation of these balances late in the quarter, we've initially placed a substantial amount in excess reserves at the Fed; such balances totaled $58.7 billion at month-end March, up from $18.8 billion at year-end 2019. Asset management and administration fees of $827 million rose 10% year-over-year, largely due to our clients' sustained utilization of advisory solutions along with increased balances in purchased money funds, which helped offset sharp declines in equity market valuations.... With first quarter market volatility driving a significant influx of client cash, our balance sheet expanded by $77 billion during the quarter to $371 billion at March 31st." Fund news source ignites wrote about Schwab earlier this week in the piece, "Coronavirus Crisis Could Prompt New Money Fund Rules: Schwab CEO." They tell us, "The coronavirus crisis may lead to a significant restructuringing across the industry, and could prompt regulators to create new rules, Charles Schwab's CEO said Tuesday. 'A lot of business models and a lot of revenue sources are likely to be subject to new rules, new oversight,' said CEO Walt Bettinger.... 'You really want to see where all of those things shake out, also, before anyone would look at significant moves around their business model.' The market disruption of recent months could cause regulators to focus on money market funds, he suggested, pointing to the 'second unique governmental support required for money market funds in the last 15 years.'" The ignites article adds, "Money fund sponsors, including Schwab, may also start slapping waivers on to their money funds, said Peter Crawford.... During the financial crisis, the Fed slashed interest rates near zero. After that happened, many companies began waiving fees on their money market funds. But in more recent years, many have abandoned that practice. However, the Fed's move last month to cut interest rates to nearly zero is expected to push more money market funds to add waivers. But Crawford predicted the impact won't be as widespread as last time. 'Fee waivers will not be nearly as big a story this time around as they were in the financial crisis,' he said Tuesday.... Schwab's Treasury and government money funds are likely to see waivers before the firm's prime and muni funds, Crawford added."
