What happened
Charles Schwab (SCHW 0.72%) intends to cut jobs and downsize its corporate office space, looking to save upwards of $500 million annually. Investors are underwhelmed, sending Schwab shares down about 3% on Tuesday morning.
So what
It has been a difficult year for Charles Schwab. Though the company is best known as a discount brokerage, it also has a large deposit-gathering business that has struggled as rates have risen. In June, the company said it has been forced to rely on other, more expensive methods to fund its operations, including borrowing from the Federal Home Loan Bank.
In response, Schwab is looking to cut costs elsewhere. Late Monday, the company disclosed it would lay off an undisclosed number of employees and reevaluate its real estate footprint. The company said it expects to take one-time charges of between $400 million and $500 million as part of the actions, primarily related to employee compensation and facility exit costs.
The employee costs are expected to be incurred in the second half of 2023, and the real estate costs spread into 2024. But Schwab sees annual savings matching or exceeding those one-time costs.
NYSE: SCHW
Key Data Points
Now what
Schwab is hardly the first big bank to announce layoffs this year, and likely won't be the last. The company remains a solid operator, but is facing a difficult environment and is attempting to resize its operations to reflect the current climate.
For long-term holders, these moves are nothing to worry about. Charles Schwab has the wherewithal to survive this tough period and to thrive again while it is over. But the layoffs and restructurings are a clear sign that the company does not see conditions improving overnight, and the shares are reacting as a result.
