Schwab’s Profit Jumps 29%; Clients Invest More

Charles Schwab Corp., the largest U.S. discount broker, said Monday that third-quarter profit rose 29% as customers invested more with the firm to take advantage of lower trading costs and the biggest stock-market gains in almost two years.

Net income increased to $266 million, or 21 cents a share, from $207 million, or 16 cents, a year earlier, Schwab said. Client assets climbed 14% to a record $1.33 trillion.

Founder and Chief Executive Charles Schwab slashed commission rates and spent about $200 million on marketing over the last year to retain customers and attract new ones from rival discounters and full-service brokers such as Merrill Lynch & Co.

Schwab sacrificed trading revenue to garner increased fees from banking services, brokerage accounts and mutual funds.

“They’ve done a pretty fabulous job of moving away from trading-based revenue and switching to fee-based services,” said Lauren Bender, a Paris-based analyst for consultant Celent Communications, which focuses on the financial service industry. Bender doesn’t have a recommendation on the shares.

Lower-than-expected compensation and marketing expenses helped boost results. San Francisco-based Schwab exceeded the average earnings estimate of 20 cents a share, according to a survey of 16 analysts by Thomson Financial.

But some measurements used to gauge the company’s performance fell short of analysts’ expectations, including average commission per trade.

Net new client assets totaled $20.9 billion, the lowest since the second quarter of 2005. Profit growth was the slowest in six quarters.

Schwab shares fell 46 cents to $17.10.