Judah S. Kraushaar, an equity analyst with Merrill Lynch & Co., initiated coverage of Charles Schwab Corp. with a “near-term neutral” rating Friday.

Though Mr. Kraushaar gave the San Francisco financial services giant a “long-term buy” rating, crediting the company’s management style and ability to create shareholder value and earnings growth, he also outlined some obstacles. “Tougher market conditions are causing retail investors to place a greater premium on advice, and the full-service brokers continue to enjoy important content advantages relative to Schwab,” he wrote in his research note.

Schwab, which has reinvented itself repeatedly over the years — including its 2000 acquisition of the private banking company U.S. Trust Corp. — faces heavier competition from traditional brokers that have also redefined how they reach customers and now offer online trading at commissions comparable to Schwab’s, Mr. Kraushaar wrote.

But its efforts to reach the high-end market through U.S. Trust seem to be paying dividends, according to a report issued last month by Goldman Sachs Group. Schwab plans to increase assets by 20% a year and to add 300 employees at U.S. Trust this year, wrote Richard Strauss, an equity analyst at Goldman Sachs.

At the same time Schwab is looking to hire for the ultra-hands-on portion of its business it has been forced to lay off 13% of the brokerage unit’s work force because of the dearth of retail investors trading online.

And recent off-the-cuff comments by Charles Schwab, chairman and co-chief executive, indicate the company may not be done buying banks. In a question-and-answer session after the annual shareholders meeting last month, Mr. Schwab said that down the road it might consider buying a transactional bank.

A spokesman said that Mr. Schwab was merely responding to a question about the types of deals the company might do and that no such deal is imminent. It is, however, canvassing customers to see if there would be any value in adding FDIC-insured accounts to its bank services. It is unclear how the company would implement that, the spokesman said.

Todd Halky, an equity analyst with Putnam, Lovell Securities, said Schwab could do one of two things: follow E-Trade Group’s lead of acquiring a bank (referring to E-Trade’s purchase of Telebank) or use its branch network to create one.

It’s hard to say whether Schwab would make a purchase in the near future, given ongoing market volatility and its effect on the company’s stock price — which hit an all-time low of $13.14 in early April off a 52-week high of $40.50 — Mr. Halky said.

“They do have additional room to make acquisitions — if they really believe that the continued revenue diversification is going to make their earnings less susceptible to volatility,” he said.

Mr. Halky added that the stock has climbed back recently and has found a trading range of $18 to $20.

Merrill’s Mr. Kraushaar, however, said he believes that the stock is still “very expensive near term” — trading at 35 times the projected 2002 earnings of 53 cents a share.

On Friday, a generally losing day for the market, which was hampered by technical glitches at the New York Stock Exchange, Schwab’s stock shed 1.62%.

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