Schwab announces stock buyback

Enriched from the sale of its wealth-management subsidiary, Charles Schwab Corp. said Monday that it would distribute $3.5 billion to its stockholders by buying back stock and paying a one-time dividend.

Schwab shares jumped $1.48, or 7.2%, to $22 on the news.

The San Francisco-based discount stockbrokerage plans to pay as much as $22.50 a share for its own stock -- 10% above last week’s closing price. The buyback price is to be set through an auction that guarantees those who sell at least $19.50 a share.

After buying 84 million shares, or about 7% of the company, in the auction, Schwab will purchase as many as 18 million shares from founder and Chief Executive Charles Schwab to keep his stake in the business around its current level of 18%.

The arrangement means the CEO could pocket as much as $405 million from the sale. His remaining stake would be worth about $4.7 billion.

Besides spending as much as $2.3 billion on the buyback, Schwab said it would dole out $1.2 billion via a special dividend of $1 a share next month. The buyback is scheduled to be completed by July 31.

Schwab is flush with cash after completing a $3.3-billion sale of its wealth-management subsidiary, U.S. Trust Corp., to Bank of America Corp. The deal, announced last fall, closed Sunday, generating an after-tax windfall of $2.7 billion.

The U.S. Trust sale had spurred speculation that Schwab might try to acquire another online stock brokerage, such as E-Trade Financial Corp. or TD Ameritrade Holding Corp., even though Schwab repeatedly said it wasn’t interested in buying rivals.