Schwab to Lower Trading Prices
Charles Schwab Corp., the biggest discount brokerage, said Tuesday that it would cut trading commissions by as much as 67% to compete with lower-cost Internet brokers such as E-Trade Financial Corp. and Ameritrade Holding Corp.
The move could reduce total revenue by 2% to 3% over the next 12 months, Schwab warned. The San Francisco-based firm said it planned “significant restrictions on new hiring” to help allay the financial effect of the commission cuts.
In the biggest change to Schwab’s pricing since the brokerage introduced $29.95 Internet trades in 1998, the firm said it would drop commissions by a third, to $19.95, for most customers. Clients with at least $1 million in assets at the firm would pay $9.95 per trade.
The changes will take effect in mid-June.
“It’s a competitive market out there, and Schwab is trying to take a proactive approach to increasing the number of transactions that get done,” said Kenneth Worthington, an analyst at CIBC World Markets.
Some said Schwab should have made the move sooner.
“I believe they left the pricing umbrella up way too long,” said James McGlynn, who helps manage $6 billion at Summit Investment Partners in Cincinnati and is a Schwab customer who has moved most of the assets he had at Schwab to Brown & Co., which charges $5 for online trades.
For Schwab, the price cuts signal its effort to regain its top position in the discount-brokerage business. The firm in recent years has emphasized its financial advisory services and other programs aimed at attracting wealthier clients who pay fees based on assets kept at the firm.
Ameritrade in 2002 passed Schwab to garner the highest daily average trading volume among discounters.
“We’re aggressively trying to grow all the parts of our business,” Schwab Chief Executive David Pottruck said. “We’ve heard from our clients that our pricing needs to come down.”
Schwab’s stock fell 28 cents, or 2.9%, to $9.27 on the New York Stock Exchange. E-Trade rose 12 cents, or 1.1%, to $11.34 on the NYSE and Ameritrade gained 23 cents, or 2.1%, to $11.18 on Nasdaq. Year to date, Schwab stock is down 21.7%, E-Trade is down 10.4% and Ameritrade is down 20.8%.
