Schwab’s Profit Falls on Decline in Trading
Charles Schwab Corp. said Tuesday that its first-quarter profit plunged 24% from a year earlier as war jitters and a weak stock market prolonged the slump in stock trading, dragging revenue to its lowest level since the end of 1998.
The biggest online broker said it earned $71 million, or 5 cents a share, compared with $94 million, or 7 cents, a year ago.
The San Francisco-based company slashed operating expenses 12% from a year earlier by cutting jobs, scaling back on advertising and suspending the matching contribution to its 401(k) retirement program. But revenue fell to $900 million, down 14% from a year earlier, as the number of client trades on which Schwab earned revenue averaged 114,600 a day in the period, down 22% from a year earlier.
“This has been a dismally slow period for stock trading” industrywide, said Richard Repetto, an analyst at Putnam Lovell NBF in New York.
In an effort to boost revenue and broaden its product line, Schwab said it plans to launch an online bank within the next few weeks, following the lead of E-Trade Group Inc., whose booming mortgage business has helped offset the damage done by the bear market.
Charles Schwab Bank, which would offer a range of services but would emphasize home mortgage lending in its early marketing, is nearing final federal regulatory approval, a Schwab spokesman said.
The stock trading slump also affected Schwab’s rival Ameritrade Holding Corp., which reported fiscal second-quarter earnings Tuesday, but revenue from Ameritrade’s purchase of Datek Online Holdings helped offset the trading slump.
Ameritrade earned $9.6 million, or 2 cents a share, versus $1.9 million, or 1 cent, a year earlier.
For Schwab, a highlight was the firm’s ability to attract investor assets in a tough market climate. The company gathered $14.2 billion in net new assets, about 10% of which came from the “Fresh Start” campaign that offered investors portfolio makeovers for $95.
Schwab shares rose 48 cents to $9.12 on the New York Stock Exchange; Ameritrade rose 20 cents to $5.20 on Nasdaq.
