Why Schwab Won't Benefit From Interest Rate Cuts
As expected, on Wednesday, the Federal Reserve cut the U.S.'s baseline interest rate. The Fed Funds rate was lowered by 50 basis points, pulling most other interest rates lower with it. The Fed committee responsible for such decisions also suggests more rate cuts are in the near-term cards, which should stimulate the economy without reigniting inflation. That's why investors are celebrating the move, and the rhetoric.
Not every company is better off with lower interest rates in this particular economic environment, however. Brokerage firm Charles Schwab (NYSE: SCHW) arguably has more to lose than gain for the foreseeable future. Investors would be wise to keep their expectations in check. Here's why.
You know Charles Schwab as a leading online broker, but trading doesn't actually drive most of its revenue. Neither does investment management or retirement plan administration. Ditto for its banking business. Rather, Schwab's single biggest source of revenue is interest income, accounting for nearly half of the company's top line. And that's after paying its own interest expenses on this revenue, to be clear.
Source Fool.com
