In the face of persistent market volatility - and after less draconian cost-cutting measures failed to stanch profit bleeding - Charles Schwab Corp. finally brought out the big guns Thursday and announced plans to lay off up to 13% of its work force.
The company said it would eliminate up to 3,400 full-time positions beginning next quarter and that it is considering office-space reduction and the shutdown of certain computer systems.
The move, foreshadowed in a press statement late last week, is something of letdown for a firm that had sought to address waning profits in more creative ways than its peers, many of which had leaped to layoffs first. For instance, Schwab said in December that it would cut executive pay, a measure still in effect, and later implemented mandatory vacation days.
But the tanking market has continued to erode retail investors' confidence. Where they once traded online carefree and unaided, they are now frozen on the sidelines.
"We have moved from a market of the last two years of tremendous exuberance and high trading frequency by customers," Charles R. Schwab, the San Francisco company's chairman and co-chief executive officer, said in an investor conference call Thursday morning. Last month Schwab's daily trading volume fell 31% from a year earlier, to 244,600 trades.
"When our trading frequency goes down, we have excess capacity handling customers," Mr. Schwab said.
Schwab's layoff announcement, like its previous efforts to trim fat, was somewhat unusual. Mr. Schwab said he hoped that those affected would feel comfortable enough with their treatment by the company to consider rejoining Schwab if the market's "exuberance" returned.
The company said Mr. Schwab and his wife Helen are contributing $10 million of their own money to a fund that will offer continuing-education stipends to former employees. And it said it would offer a re-signing bonus to those who come back.
But just who can expect to get a pink slip was not spelled out Thursday. David Pottruck, Schwab's co-chief executive and president, declined to specify where the ax will fall.
"We don't want to break it out enterprise by enterprise," he said, though he indicated that the cuts will probably be in areas that had recently expanded to accommodate excess volume. "We're trying to be as thoughtful and as fair as we can," Mr. Pottruck said.
Jim Marks, an equity analyst with Credit Suisse First Boston, said most of the job eliminations will probably be in call centers that Schwab, like its online competitors, had built up to handle the now-faded bull market.
"I would say this is a pretty good first cut," Mr. Marks said. "But it really depends on the market. By today's levels, they could go down to 15,000." Schwab will have just over 22,000 employees by the time the work-force paring is complete.
Mr. Marks, whose own company's online unit closed one of its call centers last week, said he expects more cuts throughout the financial services sector.
"Every brokerage executive has had this at the back of their minds," he said. "Right now it's being brought to the front burner."
Schwab said some areas will be spared. Jobs at U.S. Trust Corp., the private banking company Schwab bought last year to give the brokerage's maturing customers and their assets somewhere to go, are safe, Mr. Pottruck said.
"U.S. Trust will not be affected by these cutbacks, because their business continues to grow, and grow very nicely," he said.
Both Mr. Pottruck and Mr. Schwab stressed that Schwab's business model, which is migrating toward hands-on advice, will not be affected by the cuts and that the company will keep adding to add to its 390-branch network this year.
"Our branches are really focused in this area of helping and advising people," said Mr. Schwab, who then took a moment to plug his latest book. Titled "You're Fifty. Now What?: Investing for the Second Half of Your Life," it targets high-net-worth baby boomers.
The company also announced Thursday that it will take a pre-tax charge of up to $100 million in the second quarter because of the layoffs, though it said the cuts will save as much as $45 million a quarter, beginning in the third quarter.
Schwab also lowered its first-quarter per-share earnings estimate to 8 cents, 3 cents below analyst estimates that had already been ratcheted down in recent weeks.
In what started as a wrenching day in the market, Schwab's stock fell 4.4%, to close at $15.20 (see related story on back page).
From Our Archive