Ally Invest

What Happens If Charles Schwab Goes Bankrupt?


What happens to client stocks, money, portfolio, and account investments if Charles Schwab goes out of business, becomes bankrupt?



Could Schwab Go Out of Business?


If you have a brokerage or bank account with Charles Schwab, you may be worried about the company’s financial health. Could this enterprise be in danger of shutting its doors? We’ve done a lot of research, and here is our answer:


Recent Acquisition of TD Ameritrade


The Charles Schwab Corporation recently purchased TD Ameritrade, a large brokerage firm in its own right, for approximately $26 billion. This acquisition is a sign that Schwab has very deep pockets with money to burn. The new combined brokerage firm will carry the Schwab brand and will have over $6 trillion in client assets (yes, trillion with a t). With such a huge treasure chest, Schwab should have plenty of revenue for some time to come to weather any economic downturn.


Schwab’s SEC Filings


Other evidence of Schwab’s financial condition can be found in the company’s SEC filings, which are legally required every year. The company’s most recent 10-k (the annual report) was filed for 2019. Here’s what we found in it:

Schwab’s total client assets is growing at more than 10% per year, a phenomenal pace.

EPS (earnings per share) is growing at roughly 9% per annum, a sign of strong growth and the ability to produce a profit.

Most recent net income is at $3.7 billion per year, which represents a growth of around 6%.

The total number of bank and brokerage accounts is increasing by more than 5% per year.

Pre-tax profit margin has increased from 36% in 2015 to 45% in 2019 (the higher the number, the better).

Return on equity has increased from 12% in 2015 to 19% in 2019 (again, the higher the figure, the better).

The amount Schwab is paying its shareholders is growing. In 2018, its dividend was 46¢; in 2019, it was increased to 68¢. That’s a 48% increase, which is quite impressive.

Schwab’s stock, which trades under the ticker symbol SCHW on the New York Stock Exchange, has reflected the tremendous growth the company has seen in revenue and profitability. The share price stood at $11 in 2011. Today, it is at $38. Clearly, investors are seeing the performance of this company.


Schwab's Competitors


Broker Review Broker
Rating
Stock/ETF
Fee
Mutual Fund
Fee
Option Promotion Offer
WeBull
4.5-star brokerage rating

$0 na $0 6 FREE stocks valued $34-$12,600 give-away at Webull.
Firstrade
Firstrade rating

$0 $0 $0 Get 2 FREE stocks and $0 commission in ALL trades!
Charles Schwab
Charles Schwab rating

$0 $49.95 ($0 to sell) $0.65 Get commission-free online stock trades.
TD Ameritrade
TD Ameritrade rating

$0 $49.99 ($0 to sell) $0 commissions + transfer fee reimbursement.


But What About Commissions?


Like other brokerage firms, Schwab reduced its equity commission in 2019 to $0. The average commission Schwab customers paid in 1975 was $112. Obviously, this is going to result in a loss of revenue. However, Schwab along with other brokerage firms receive revenue from many activities. Commissions only represent a small percentage of total revenue. Other streams include fees from managed accounts, order flow, and commissions on other products like options, futures, bonds, and mutual funds.


How Does Schwab Compare to Other Brokers?


Other brokerage firms don’t have nearly the same level of strength as Schwab. For example, we pulled up E*Trade Financial’s most recent annual report, and the numbers just don’t match up. For example:

Net income stands at $955 million, just a quarter of what Schwab pulled in during the same period.

E*Trade’s most recent dividend was just 56¢.

Return on equity was 16%. This is in comparison to Schwab’s 19%.

Total assets across both banking and brokerage operations totals $64 billion, a tiny fraction of what the combined Schwab-TD Ameritrade will have.


Could Schwab Go Bankrupt: Judgment


It’s very unlikely that the Charles Schwab Corporation will go out of business anytime soon. Analyzing the issue from a much longer-term perspective will create a different answer, however, as corporations can change over time.

If Schwab ever did file for bankruptcy, remember that both its banking and investment divisions are protected by the FDIC and SIPC, respectively. This means that deposit accounts are insured up to $250,000 per depositor, and brokerage accounts are protected up to $500,000 (according to number of shares, not share price).

When a brokerage firm does go out of business, it typically is sold to a rival company, who takes over the old broker’s accounts. So if Schwab did go out of business, your Schwab brokerage account would most likely be transferred to another brokerage firm, and your Schwab deposit account would move to another bank, all without much fanfare. So in the end, there’s not much to worry about. Stock prices are another story altogether.


About the Author
Chad Morris is a financial writer with more than 20 years experience as both an English teacher and an avid trader. When he isn’t writing expert content for Brokerage-Review.com, Chad can usually be found managing his portfolio or building a new home computer.