Charles Schwab CEO Rick Wurster on Q3 results: A record quarter in serving clients

>> WELCOME BACK EVERYBODY. CHARLES SCHWAB REPORTING RECORD REVENUE IN THE THIRD QUARTER. YOU CAN SEE THE STOCK THIS MORNING UP BY ABOUT A HALF A PERCENTAGE POINT. IT WAS DOWN BY A COUPLE PERCENT YESTERDAY. JOINING US RIGHT NOW IS THE COMPANY'S PRESIDENT AND CEO RICK WORCESTER. AND RICK THANK YOU FOR COMING IN THIS MORNING. >> THANKS FOR HAVING ME. >> I WATCHED THE STOCK PRETTY WITH A LOT OF INTEREST YESTERDAY BECAUSE THE NUMBERS THAT YOU GUYS PUT OUT WERE PRETTY PHENOMENAL. YOU BEAT ON THE TOP LINE, YOU BEAT ON THE BOTTOM LINE. YOU'RE LOOKING THROUGH ALL OF THE THINGS THAT HAPPENED WITH THIS. LET'S SEE A NEW ASSET HAUL OF ABOUT $190.4 BILLION THAT SOME ANALYSTS WERE DESCRIBING AS HUMMING. YOU HAD CORE NET NEW ASSETS UP 38% YEAR OVER YEAR. TOTAL CLIENT ASSETS OF 13.3 TRILLION AT THE END OF THE QUARTER. THAT WAS AN INCREASE OF 15% YEAR OVER YEAR. WHEN THE NUMBERS FIRST CAME OUT, THOUGH, THE STOCK DROPPED BY ABOUT 5% BEFORE KIND OF COMING BACK THROUGH THE CONFERENCE CALL AND OTHER THINGS. WHAT HAPPENED? WHAT WERE INVESTORS LOOKING AT? >> SURE. WELL, IT WAS A RECORD QUARTER AND WE'RE THRILLED ABOUT THAT. MOST IMPORTANTLY, IT WAS A RECORD QUARTER IN SERVING CLIENTS. WE WERE THERE FOR CLIENTS. WE'VE HAD A RECORD LEVEL OF ENGAGEMENT FROM THEM IN TERMS OF THEIR TRADING ACTIVITY, THEIR INTERACTION WITH US. THEIR SATISFACTION SCORES ARE AT AN ALL TIME HIGH. SO FOR A COMPANY THAT'S SO CLIENT FOCUSED, IT'S REWARDING TO SEE THAT RECORD LEVEL OF CLIENT ENGAGEMENT. IT TRANSLATED INTO OUR FINANCIAL RESULTS ALL TIME HIGH REVENUE, ALL TIME HIGH IN EARNINGS. I THINK THE STOCK IS REACTING TO TWO THINGS THIS YEAR. ONE HAS BEEN THERE'S CONCERN AROUND AI. AND WHAT I THINK THE MARKET IS MISSING IS THAT AI IS A BIG ACCELERANT TO OUR COMPANY RATHER THAN A HEADWIND. THE SECOND ONE, WHICH IS A SHORTER TERM ISSUE, IS JUST THERE WERE SOME QUESTIONS ABOUT NET INTEREST MARGIN. AND I THINK WHAT WHAT PEOPLE WERE MISSING ABOUT THAT IS THAT OUR NET INTEREST MARGIN IS BEING DRIVEN BY REALLY STRONG LOAN GROWTH FROM OUR FROM OUR CLIENTS. AND THAT'S OUTPACING DEPOSIT GROWTH JUST TO TOUCH, WHICH SQUEEZED OUR NIM. BUT THE REPORT WAS AN ALL TIME RECORD. WE COULDN'T BE HAPPIER ABOUT HOW WE'RE SHOWING UP FOR CLIENTS. >> THE NET INTEREST MARGIN, 3.04%. THE CONSENSUS WAS FOR ABOUT FOUR BASIS POINTS HIGHER THAN THAT. EXPLAIN AGAIN HOW THE DEBT THAT YOUR CLIENTS ARE TAKING OUT, THEY'RE BASICALLY USING LEVERAGE TO BUY MORE STOCKS. >> OUR CLIENTS ARE USING LEVERAGE TO ACCENTUATE THEIR RETURNS. WE SAW LEVERAGE GROW ABOUT 90% YEAR OVER YEAR. BUT BUT THE MAJORITY OF THAT WAS DRIVEN BY TAX AWARE, LONG SHORT STRATEGIES. IF YOU LOOK AT THE UNDERLYING MARGIN BUYING, IT WAS UP LESS THAN THAT BY A CONSIDERABLE AMOUNT. AND THE OVERALL LEVERAGE RATE OF OUR CLIENTS HASN'T CHANGED THAT MUCH. SO ESSENTIALLY WHAT'S HAPPENING IS THE MARKET EXPANDS. THEY'RE KEEPING THEIR EQUITY TO THEIR TOTAL INVESTING POSITION THE SAME, AND THAT'S DRIVING MARGIN GROWTH. WHAT'S MOST IMPORTANT THOUGH? OUR CLIENTS ARE ENGAGED, THEY'RE THRIVING. THEY'RE ACHIEVING NEW LEVELS OF OF WEALTH. AND THEY'RE COMING TO US FOR INVESTMENT HELP AND ADVICE. AND WE'VE BEEN THERE FOR THEM. ALL OF THAT IS FUELING OUR RECORD RESULTS. >> WHEN YOU LOOK AT THE MARKET, OBVIOUSLY IT'S BEEN A PRETTY BANNER QUARTER FOR EQUITY TRADING. IF YOU LOOK ACROSS A LOT OF THE TRADING FIRMS THAT HAVE DONE THESE THINGS THAT HAVE SHOWED THESE THINGS, IPOS HAVE BEEN KIND OF CITED AS PART OF THE REASON FOR THAT. BUT WE ARE LOOKING AT AN IPO MARKET THAT IS A LITTLE MORE UNSETTLED THAN IT HAS BEEN TO THIS POINT. SOME RECENT IPOS THAT WERE SUPPOSED TO GO OUT GOT PULLED. A LOT OF PEOPLE WATCHING ANTHROPIC AND WONDERING WHAT THAT IPO IS GOING TO MEAN. HOW IMPORTANT DO YOU THINK THE ANTHROPIC IPO IS TO THE TO THE BROADER EQUITY MARKET? >> WELL, I THINK IT'S ALL PART OF JUST A LOT OF INTEREST IN AI, A LOT OF INTEREST IN BEING AN INVESTOR. MORE PEOPLE OWN EQUITIES TODAY THAN THAN EVER IN OUR COUNTRY. AND THE LEVEL, THE PERCENTAGE OF THEIR NET WORTH THAT'S IN EQUITIES HAS NEVER BEEN HIGHER. SO THERE'S JUST AN INCREDIBLE LEVEL OF ENGAGEMENT WITH THE STOCK MARKET. AND TO ME THAT'S A GOOD THING. IF PEOPLE START SAVING EARLY, IF THEY PARTICIPATE IN THEIR 401 K, THEY GET THE COMPANY MATCH. >> TRUMP ACCOUNTS. >> TRUMP ACCOUNTS START THEM EARLY. THE MORE PEOPLE THAT THAT REALIZE THE POWER OF THE VALUE OF COMPOUNDING FROM AN EARLY AGE, THE BETTER OFF PEOPLE WILL BE IN THE LONG RUN. AND, YOU KNOW, PART OF THE CHALLENGE WE'VE SEEN WITH INFLATION AND THE IMPACT ON THE LOWER END CONSUMER IS THEY HAVEN'T BENEFITED FROM THE STOCK MARKET THE SAME WAY THAT THOSE THAT INVESTORS HAVE. >> RIGHT. I MEAN. >> I WAS THINKING ABOUT IT, IT MIGHT ONLY GET BETTER. THERE'S A LOT OF PEOPLE THAT THINK THIS IS THE EARLY PART OF THE 1920S, AND SOMETHING BAD IS GOING TO HAPPEN. THAT MAY BE TOTALLY WRONG. THIS MAY BE SO POWERFUL. IT MIGHT BE MORE POWERFUL THAN THE INTERNET, MAYBE MORE POWERFUL THAN ELECTRICITY. IT'S GOING TO MANIFEST ITSELF IN INDIVIDUAL COMPANIES, IN THEIR STOCKS AND THEIR EARNINGS. AND THIS COULD GO AND GO. IT COULD BE A REALLY GOOD TIME FOR FOR EQUITIES. MY ONLY QUESTION IS HOW DOES SCHWAB, YOU KNOW, BEAT BACK PLACES LIKE ROBINHOOD OR COMPETITORS OR, YOU KNOW, NEW AGE COMPANIES THAT WANT TO DO THINGS. YOU GUYS DO HAVE CARL, WHICH WHICH SHOWS PEOPLE WHAT YOU CAN GET IF YOU DON'T GO TO SCHWAB, YOU GET A CLOWN LIKE HIM, WHICH HE'S STILL, I ALWAYS BRING HIM UP BECAUSE YOU GOT YOU GOT MORE NEW COMMERCIALS WITH HIM. HE'S ALWAYS, I. >> LOVE THAT YOU LOVE. >> I LOVE. >> CARL WARMS MY HEART. I THINK WE'RE IN A REAL POSITION OF STRENGTH. AND THIS THIS ENVIRONMENT ACTUALLY PLAYS TO OUR STRENGTH. BECAUSE WHAT INVESTORS WANT IS THE COMBINATION OF TECHNOLOGY AND PEOPLE. WE SURVEYED INVESTORS IN OUR COUNTRY IN MORE THAN 70% OF THEM ARE ALREADY USING AI TO INVEST, BUT MORE THAN 90% WANT A HUMAN INVOLVED ALONGSIDE OF THAT. >> BUT TO JOE'S POINT, YOU ARE ROLLING INTO THINGS LIKE PREDICTION MARKETS THAT IS ON THE ON THE FOREFRONT FOR YOU GUYS, RIGHT? >> YEAH. WE WILL OFFER PREDICTION MARKETS. WE'LL OFFER THEM ON FINANCIAL EVENTS. WE WILL NOT OFFER THEM ON SPORTS. WE DON'T WANT TO BE IN THE GAMBLING BUSINESS. OUR MISSION HAS ALWAYS BEEN TO MAKE CLIENTS BETTER OFF. IT'S HARD TO LOOK A CLIENT IN THE EYE AND SAY, I, I'M HERE TO MAKE YOU BETTER OFF. WHY DON'T YOU GAMBLE YOUR MONEY ON SPORTS? >> BUT YOU KNOW, YOU SCHWAB I THINK OF AS I MEAN, HOW OLD IS IT? I MEAN, IT'S AMAZING. CHUCK IS STILL VIBRANT AND PLAYING. AND HE STARTED THIS THING OBVIOUSLY. BUT I THINK OF IT AS A PRETTY ESTABLISHED OLD LINE, SORT OF A LEGACY COMPANY. THERE'S HOW DO YOU KEEP UP? YOU'RE A YOUNG GUY. ARE YOU READY FOR THIS? ARE YOU READY TO ANTICIPATE ALL THE LOOK AROUND CORNERS FOR WHERE THIS BUSINESS IS GOING? >> WELL, WE'RE MOVING WITH THE SPEED OF A FINTECH, BUT WITH THE SIZE AND SCALE AND AND LEGACY OF A 50 YEAR COMPANY BEHIND. >> US TO DO IT. >> YEAH, THAT THAT POWER IS REALLY WORKING FOR US. WE'RE ACCELERATING OUR AI EFFORTS. WE JUST ANNOUNCED THAT WE'RE ROLLING OUT CHARLIE, A NEW AI ASSISTANT, WHICH WILL BE A CONVERSATIONAL ASSISTANT THAT YOU CAN INTERACT WITH. AND IT WORKS BY GOING OUT TO ACTUALLY SEARCHING DIFFERENT LLMS TO FIGURE OUT WHICH ONE HAS THE BEST ANSWER TO THE QUESTION THE CLIENT IS ASKING. AND SO IT'S VERY EFFICIENT WAY FOR CLIENTS TO ENGAGE WITH US. WE'VE GOT WE'RE FINDING OTHER WAYS FOR CLIENTS TO COME INTO SCHWAB USING THEIR OWN LLM. WE'LL DO THAT THROUGH AN MCP SERVER, WHICH ALLOWS THEM TO USE THEIR LLMS IN A SAFE AND SOUND WAY. >> WE ARE. TALK A LITTLE BIT ABOUT THAT, BECAUSE JAMIE DIMON HAS SAID THAT THEY'RE NOT GOING TO LET EVERYBODY IN. YOU HAVE SAID YOU'RE NOT GOING TO LET EVERY AGENT INTO. >> YEAH, WE ARE BLOCKING UNAUTHORIZED ACTIVITY. SO WE DON'T WANT PEOPLE JUST GIVING THEIR PASSWORDS TO THE AGENT OF THEIR CHOICE AND TRYING TO LOG IN AND TAKE ACTIVITY. IT'S NOT SAFE FOR THEM. IT'S NOT SAFE FOR US. WE ARE BLOCKING THAT. THE GOOD NEWS IS I GET A REPORT