Schwab Expects to Miss Earnings Forecasts
Charles Schwab Corp., a leading online and discount brokerage firm, Thursday said it will miss the Wall Street consensus earnings estimate for the second quarter as investors shied away from trading amid accounting scandals and corporate-governance concerns.
“May was a fairly weak month, and that softness has continued,” Schwab Chief Financial Officer Chris Dodds said.
The San Francisco-based brokerage probably will post earnings of 7 cents or 8 cents a share for the second quarter, Dodds said. Analysts on average expect Schwab to earn 9 cents a share in the quarter, according to research firm Thomson Financial/First Call. Investment bank Robertson Stephens Wednesday cut its estimate to 7 cents a share in anticipation of a profit warning Thursday.
Schwab (ticker symbol: SCH) in May processed an average of 125,300 revenue trades a day, down 25% from a year ago and down 6% from April. Revenue trades exclude mutual fund trades.
Schwab took in $4.6 billion in new client assets in May, raising total client assets to $833.2 billion. The brokerage firm brought in $2.6 billion in net new assets in April.
May’s net new assets figure was “a credible if not spectacular number,” Dodds said. Schwab did see an “uptick” in new assets after unveiling its new stock-grading system May 16, he said.
Schwab, which has nearly 8 million customers, is looking to profit from the negative scrutiny surrounding Wall Street research by touting the merits of its own system, which is free of investment banking ties.
It has started grading stocks on a scale of A to F, based on data from a number of sources.
However, not everyone was impressed with the early results of Schwab’s marketing campaign.
“Somewhat disappointingly, given the firm’s recent ad spending ramp-up, new account openings were the lowest since September 2001,” Salomon Smith Barney analyst Guy Moszkowski said in a research note. He also said he would be lowering his quarterly earnings estimate.
Schwab shares fell 39 cents to $11.15.
Shares of full-service brokerages such as Lehman Bros. (LEH) also fell Thursday after a Merrill Lynch analyst reduced earnings estimates for the group.
Tyco Stocks Rise as
Regulators Clear IPO
Shares of Tyco International Ltd. rebounded strongly Thursday after the company received approval to shed its lending unit and announced plans to streamline operations.
Tyco said it is selling its operational headquarters building and moving employees to a nearby site as part of an effort to save $125 million a year. About 115 corporate staff positions will be cut, Chief Financial Officer Mark Swartz said Thursday. The company also is getting rid of all its aircraft and consolidating, moving or closing several other corporate offices.
Shares of Tyco (TYC), based in Bermuda but run from Exeter, N.H., rose $3.65, or 36%, at $13.80.
Word of the changes came after a day full of up and down news at Tyco on Wednesday.
Bright news that a plan to shed Tyco’s lending unit is moving forward was dimmed when the company said issues arising from the indictment of its former chief executive will be studied by the Securities and Exchange Commission.
Tyco said Wednesday that it would cooperate with the investigation of former chief L. Dennis Kozlowski’s activities at the firm.
Late Wednesday, Tyco got some good news when the SEC approved the registration of Tyco’s lending unit, CIT, for an initial public offering. The approval clears a major hurdle for Tyco, though it is still unclear when the deal will be completed, said a source with knowledge of the matter.
Tyco said it expected the IPO to reap as much as $5.8 billion, down from the $7.2 billion the company had earlier said it hoped to get. Tyco paid more than $9 billion for CIT last June.
The company plans to use the proceeds to pay down about $27 billion in debt. Tyco had hoped to complete the deal by the end of June, but said recently that could be delayed a week. Tyco’s bonds rallied Thursday on hopes the IPO will help the conglomerate pay down debt.
A conference call with investors was scheduled for today.
Associated Press
