Schwab’s Profit Falls 64% Amid Restructuring

Charles Schwab Corp.’s fourth-quarter profit dropped 64%, reflecting the toll of the latest reorganization aimed at reinvigorating the long-slumping stock brokerage.

The San Francisco-based company said Tuesday that it earned $53 million, or 4 cents a share, in the fourth quarter, compared with $148 million, or 11 cents, during the same period in 2003.

Revenue totaled $1.1 billion, up slightly from the previous year.

Schwab absorbed $111 million in restructuring charges during the quarter as the company continued to jettison workers to cut costs so it could afford to lower its brokerage commissions and other fees.

If not for the fourth-quarter charges, Schwab said it would have earned 12 cents a share. That figure was a penny above the average estimate of analysts surveyed by Thomson First Call.

The company’s shares Tuesday rose 27 cents to $11.39 on the New York Stock Exchange. The stock has traded in a 52-week range of $8.25 to $13.92.

Schwab has been struggling to recapture its stride for the last four years. The brokerage’s woes began in late 2000 as customers rattled by a sharp decline in the stock market began to curtail their trading.

To offset a loss in revenue, Schwab tried to introduce more fees to pay for more sophisticated services -- a shift that alienated many budget-minded customers who preferred the low-cost, self-service approach that helped the discount brokerage revolutionize the industry.

The company has been emphasizing a back-to-basics approach since its board ousted David Pottruck as its chief executive six months ago and brought back founder Charles Schwab to help win back customers.

Since Schwab’s return, the brokerage has dramatically lowered its fees to become more competitive with online rivals such as E-Trade Financial Corp. and Ameritrade Holding Corp.

The strategy appears to be paying off. Schwab said customers deposited $16.8 billion in their accounts during the fourth quarter. Excluding gains made through acquisitions, that was the highest quarterly customer cash inflow at Schwab in more than three years.

Schwab ended December with $1.08 trillion in customer accounts, the most in the company’s history. At the end of 2003, its customers held $967 billion.

Meanwhile, a dramatic reduction in Schwab’s overhead is enabling the company to pocket more money from each revenue dollar. The company’s operating profit margin of 15.5% represented its highest since the stock market reached its record peaks in early 2000.

“We are quite encouraged with the company’s financial performance,” Schwab Chief Financial Officer Christopher Dodds said Tuesday.

Schwab has fattened its profit by slimming its workforce. The company ended 2004 with 14,200 employees, down 11% from 16,000 workers at the beginning of the year. When its profit peaked four years ago, Schwab employed more than 26,000 workers.

Schwab may trim its payroll a little more this year, but most of the cuts probably will be made through attrition, Dodds said.

For all of 2004, Schwab earned $286 million, or 21 cents a share, on revenue of $4.2 billion. In 2003, Schwab earned $472 million, or 35 cents, on revenue of $3.9 billion.