The latest payroll trimming at Charles Schwab Corp. will turn back the clock, in headcount terms at least, to 1999.

Schwab has contended with a staffing crisis in each of the last three years. Internally it refers to the first two of those periods — the opening four months of 1999 and 2000 — as “market storm 1” and “market storm 2.”

“Both of those years we were unprepared for the flood of activity, which resulted in our inability to meet customer demand, as well as burnt-out employees,” Christopher V. Dodds, the San Francisco company’s chief financial, said in an interview Thursday. Schwab, like its peers in the discount business, had added staff as fast as it could.

“Market storm 3” never happened. Consequently, Schwab, a reluctant job-cutter in early 2001, is now in its second major round of layoffs this year.

The layoffs, which the company had warned about, will eliminate one-quarter of its workforce by the yearend and essentially wipe out all of last year’s hires. As many as 1,900 full-time employees and 200 contractors will get pink slips by the end of October, and another 200 to 300 full-timers will be lost by yearend through “voluntary attrition,” the company said.

Mr. Dodds said the cuts announced Thursday are more “broad-based” and “strategic” than those Schwab announced in March, when the company said it would eliminate 3,400 jobs because of overcapacity.

“We’re looking at all levels of the firm,” he said, including “more expensive people.” He hastened to add: “But we did not go to the business units and say that each of you has to take out this much staff.” Rather, Schwab concentrated on what it needed to do to achieve “conservative revenue growth” over the next five or six quarters.

Even though cost-cutting among the discount brokerages has accelerated, nearly all of them have announced or completed acquisitions recently.

That trend held on Thursday, as Schwab’s announcement was followed by word from E-Trade Group Inc. that the Menlo Park, Calif., discount broker had agreed to buy Dempsey & Co., a market-maker with memberships on the Chicago Stock Exchange and Nasdaq. The $173.5 million deal is expected to close next quarter. On Aug. 6, E-Trade announced it had completed its acquisition of WebStreet Inc., the parent company of the online brokerage WebStreet Securities.

Toronto-Dominion’s TD Waterhouse Group, which has pledged to slash its workforce by 30%, announced this month that it had agreed to buy R.J. Thompson Holdings Inc., a privately held direct-access broker in Omaha, and Ameritrade, which is also cutting cots, is acquiring National Discount Brokers Corp. from Deutsche Bank.

Richard Repetto, an equity analyst at Putnam Lovell Securities in New York, said: “The economic environment we are in is causing everyone to pull back expenses. But it’s also a driver of acquisitions.”

The acquisitions have been aimed at offsetting the discount brokers’ trading-volume problems. Volume has deteriorated so rapidly that some analysts question whether even the latest cuts by Schwab will be enough.

Henry McVey, an analyst with Morgan Stanley Dean Witter, said Schwab’s “expense cuts, including the headcount reduction, are definitely a step in the right direction,” but “the major issue, which I think some investors have not focused on, is that revenues are declining faster than the company can cut expenses.”

Schwab’s cost-saving initiatives include reductions in existing facilities and the removal of certain systems hardware. The company had spent heavily in recent years to build out its trading-systems capacity and is now saddled with far more than it can use.

Schwab will take pretax charges of about $225 million over the rest of 2001 to reflect the restructuring, but said it can reduce pre-tax operating expenses by about $65 million per quarter starting with the first quarter of 2002. It has already taken most of a $135 million to $140 million charge stemming from the layoffs announced in March.

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