Schwab says Q2 revenue could decline as much as 11%

The company's shares have lost more than one-third of their value this year as higher rates led customers to yank cash out of Schwab's low-yielding sweep accounts,

Charles Schwab Corp. expects its revenue to slide as much as 11% in the second quarter compared with a year earlier, the company’s chief financial officer, Peter Crawford, said in a statement Wednesday.

The forecast is the latest sign that higher rates and changing customer behavior have strained the brokerage. Schwab is enduring a squeeze on its net interest margin as it borrows from the Federal Home Loan Bank network and navigates a period of lower trading activity.

The Federal Reserve’s rapid interest rate hikes over the past year have pressured Schwab’s banking arm, a pivotal piece of its overall business. The higher rates spurred customers to yank cash out of Schwab’s low-yielding sweep accounts, searching for more interest from products such as money-market funds and certificates of deposit.

The risks Schwab faces came into sharper focus as several regional banks collapsed this spring, and the brokerage’s shares lost more than one-third of their value this year.

Crawford underscored that the rate of withdrawals is slowing. Schwab’s average pace of cash outflows slowed to $350 million per business day in May from $1 billion in April, according to his statement.

Shares rose 0.4% to $54.98 at 1:25 p.m. in New York.

Executives maintain that the firm’s higher-cost borrowing is temporary. Crawford said the “vast majority” of its more expensive balances should be repaid before the end of 2024.

[More: Schwab starts hedging interest-rate risk with derivatives]