Schwab Profit Jumps 29% on Market Rally

Propelled by the Wall Street rally, Charles Schwab Corp. reported a 29% surge in second-quarter profit Wednesday, but the brokerage said its outlook remained “cautious” as many investors were still leery of the stock market amid a shaky economy.

Net income at San Francisco-based Schwab climbed to $126 million, or 9 cents a share, versus $98 million, or 8 cents, in the year-earlier quarter. The results met Wall Street analysts’ consensus estimate as compiled by Thomson First Call.

Revenue slipped 2% to $1.02 billion.

“Many investors continue to approach the markets with hesitancy, leading us to remain cautious about the sustainability of our improved business results,” said Chief Executive David S. Pottruck.

The resilient stock market boosted Schwab’s client assets and daily trading volume from the first quarter, as it did for rivals such as Ameritrade Holding Corp. But Schwab had trouble attracting customers. Net new accounts and total accounts both fell, in part because the company slashed marketing and advertising spending.

Customers made an average of 141,000 commission-generating stock trades a day, up from 114,000 in the first quarter. Client assets rose to $845 billion from $763 billion on March 31.

The stock market rose sharply in the quarter, which also spurred customers to pour more money into Schwab’s supermarket of equity mutual funds.

The firm, however, added 152,000 net new accounts, down from 171,000 in the first quarter, and $6.5 billion in net new assets, versus $14 billion. It had 7.7 million accounts as of June 30, compared with 8 million on March 31.

Schwab cut its ad spending to $21 million from $48 million in the first quarter, spokesman Glen Mathison said. Fee increases and higher thresholds to avoid account charges also led to attrition, he said, as the firm continued moving away from its roots as a discount brokerage.

In an effort to gather more assets, Schwab plans to raise its marketing budget 40% this quarter, Mathison said.

“An improved equity environment is good news for Schwab, but the decline in net new assets is a concern,” said Jeffery Harte, analyst at Sandler O’Neill & Partners.

Meanwhile, Schwab raised its quarterly dividend to 1.4 cents a share from 1.1 cents, a 27% increase, though the new annual total amounts to a modest 0.5% yield based on the stock’s current price. Company founder Charles Schwab was a vocal backer of President Bush’s dividend tax cut plan.

Schwab shares slid 33 cents to $10.97 on the New York Stock Exchange.