Charles Schwab Corp. on Tuesday missed analysts’ second-quarter earnings estimates despite having guided Wall Street lower last month when it warned that a slowdown in retail trading compounded by its new lower fee schedule could harm the bottom line.
The San Francisco brokerage company reported its earnings as it announced a management shakeup that ousted chief executive officer David S. Pottruck and installed Charles R. Schwab to head the company he founded more than 30 years ago. ( See related story: "
Second-quarter earnings fell 10% from a year earlier, to $113 million, the company said. It cited a lackluster market dampened by political uncertainty and concerns about rising interest rates, both of which it said have affected the retail investor’s psychology.
“This is the worst we have seen in terms of trading activity and trading revenues,” said Christopher V. Dodds, the chief financial officer, in a conference call to discuss the results. The company said trading activity had dwindled from an average of 165,000 trades a day in April to 126,000 in June; July continues to be slow. “It’s a fairly listless market,” added Mr. Dodds.
The downturn in activity trimmed trading revenues by 26% from the prior quarter, helping cause a 7% decline, to $1.1 billion, in total revenues.
However, despite the slowdown in retail trading, Schwab’s competitor, Ameritrade Holding Corp., was able on Tuesday to report its third-best quarter ever. The Omaha company said its fiscal third-quarter earnings, for the period ended June 30, had grown 25%, to $62 million, from the year before. Its earnings per share of 15 cents met analysts’ estimates.
During the company’s earnings call, Ameritrade CEO Joseph Moglia, whose contract is to expire next year, discussed his future at the company. According to Dow Jones, Mr. Moglia, 55, will decide whether to stay at the company “this fall.”
At Schwab new and existing clients brought in $12.7 billion of net new assets during the second quarter, excluding a $6 billion nonrecurring outflow in June related to its mutual fund clearing business, the company said.
“The new-account numbers are very disappointing,” said Mr. Dodds.
Schwab remains on track to identify cost cuts this year, he said, but the company will now look to remove more than the $150 million of costs it promised last month. It will cut up to $200 million or more from the expense line this year, he said.
Schwab has already earmarked 250 jobs in Florida to be eliminated and will cut more, Mr. Dodds said. The company’s head count stood at 16,700 at June 30.
On the bright side, Schwab saw some growth in its retirement business; Charles Schwab Corporate Services attracted $1.9 billion of net new assets to its retirement plan offerings. Client assets in retirement plans were up 21% from the second quarter of 2003, at $121 billion.
The company ended the quarter with $998 billion of client assets, an 18% increase from the year earlier. Margin balances remained flat at $9.1 billion.
Schwab’s shares were up 5% in midday trading; Ameritrade’s rose 10% by midday.
