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Charles Schwab Corp (SCHW): The Fastest Growing Bank Isn’t A Bank After All

One Thing That Makes This Bank Different
Schwab’s future growth engine could be the traditional banking business. One of the biggest advantages the company has is, the fact that they ask more detailed questions of their customers than traditional bankers. This stems from the fact that Charles Schwab Corp (NYSE:SCHW) is gaining bank accounts from brokerage clients and not from a customer walking in off the street to open a checking account.

The holy grail of banking is a number called the cross-sell ratio. The short version of the ratio is, it’s the number of products and services that one customer has with the bank at any given time. If a customer has a checking account, a savings, a CheckCard, and Online Banking, they would have a cross-sell of 3. The checking account is the standard, and each additional service is counted as a “cross-sold” service. The reason this is so important is, the higher the cross-sell number, the more sticky that customer becomes.

Traditional banks like BB&T Corporation (NYSE:BBT) have a hard time increasing their cross-sell, because traditional bankers just don’t ask as many detailed questions as brokers. Capital One has a similar issue as they gain many customers through credit cards, and then try to sell other banking services.

Brokers like E TRADE Financial Corporation (NASDAQ:ETFC) and TD Ameritrade usually get the customers’ brokerage account but their heavy reliance online accounts puts them at a disadvantage. Charles Schwab Corp (NYSE:SCHW) uses this same tactic, but because the broker is less dependent on online only customers, there is a greater chance for the company to sit down (in person or over the phone) with new customers.

The fact that Schwab added 32.26% more in total deposits on a year-over-year basis speaks volumes about the company’s ability to attract good relationships. By comparison, only Capital One outperformed this measure with a 65.71% jump in total deposits last year. However, Capital One needed multiple large acquisitions to make this happen. Looking at BB&T’s deposit growth of 6.51% and E*Trade’s deposit growth of 7.3%, you can see how far ahead of the pack Schwab is running.

Schwab also increased its mortgage and equity lending by 14% year-over-year. Capital One Financial Corp. (NYSE:COF) also outperformed again through acquisitions with an increase of 54.81%. However, even TD Ameritrade Holding Corp. (NYSE:AMTD) Ameritrade’s 9.44% increase in total loans couldn’t match Schwab’s growth. Relatively speaking, BB&T’s loan growth of just over 6%, and E*Trade’s increase of 5.59%, aren’t in the same ballpark as the rest.

Bank On This
As you can see, Schwab is a force in the brokerage market, and is leveraging these relationships to grow their banking business. With 888,000 bank accounts, Schwab isn’t playing around. The company’s $82.4 billion in bank balances is a relatively small amount. However, Schwab has $2.08 trillion in total client assets, which represents a massive opportunity to cross-sell these customers on Schwab bank.

While Schwab’s shares aren’t necessarily cheap at 22 times projected earnings, if the company can continue growing its banking business, this could be the fastest growing bank that no one sees coming.

The article The Fastest Growing Bank Isn’t A Bank After All originally appeared on is written by Chad Henage.

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