Schwab Commission Trades Rise 10%
Leading Internet broker Charles Schwab Corp. said Monday that commission-producing trades rose 10% in October. Though its stock rallied on the news, it continued to lag the gains of several rivals.
The report also noted that Schwab’s client asset growth in October fell to $7.6 billion from the average of $8.2 billion a month recorded in the third quarter.
“The asset growth number appears to be easing from the third quarter, and it’s something I’m watching,” said Henry McVey, a Morgan Stanley Dean Witter analyst.
Still, news that trading volumes are rising again helped spark a rally in Internet brokerage stocks, which was also fueled by an announcement by Schwab, Ameritrade Holding Corp. and TD Waterhouse Group Inc. that they’re starting an investment bank to get more shares of initial public offerings for their clients.
Schwab rose $1.88, or 4.4%, to $44.75 on the New York Stock Exchange, while the Bloomberg index of Internet financial companies advanced 6%. Ameritrade rose $4.50, or 21%, to $26.44 on Nasdaq, while TD Waterhouse rose $2.38, or 14%, to $19 on the NYSE.
The Net broker index soared 13% on Friday, and Schwab jumped 16%--the most in almost a year--after Hambrecht & Quist said trades industrywide since Oct. 1 neared record levels. It was a relief for an industry whose trades fell 7.8% in the third quarter, the first decline.
Despite Friday’s surge, Schwab’s stock has lagged that of its rivals lately. In the last seven trading sessions, the shares have gained 7%, versus 44% for Ameritrade and 49% for TD Waterhouse.
Analysts said Monday’s rally may have been subdued because of lofty expectations for Schwab, along with concern over the client asset numbers.
“Maybe people were expecting a higher [volume] number, but that’s silly because Schwab is so big” that it can’t show big percentage shifts in trading activity as easily as smaller firms, said Amar Mehta, an analyst with CIBC Oppenheimer Inc.
Schwab customers made an average of 144,300 commission trades daily in October, compared with 131,400 in September and 126,400 in August. The increase was in line with stock market volume gains on Nasdaq and the NYSE.
Schwab’s commission trades have now grown in the last two months after declining in four of the previous six months. The October average was still below the July daily average and ranks only sixth-highest in the 10 months of 1999, 30% below the record of 207,700 set in April.
“If they’d said where their November numbers are, investors would be more positive,” said Scott Appleby, an analyst with BancBoston Robertson Stephens.
The brokerages, meanwhile, said their Silicon Valley-based bank, expected to open early next year, will focus on information technology and Internet companies. Scott Ryles, who resigned two weeks ago as Merrill Lynch & Co.’s head of technology banking, will be chief executive.
Funding will come from venture capital firms Kleiner Perkins Caufield & Byers, Benchmark Capital and Trident Capital.
“It’s a banding together, a sort of strong-arm tactic to try and drive IPO allocations for their clients,” said James Marks, analyst with Credit Suisse First Boston.
