Still smarting as wary retail investors shun online stock trading, Charles Schwab Corp. said Thursday that it will continue to watch costs for the foreseeable future.
The San Francisco financial services company said it will continue its two-month-long hiring freeze, which has allowed it to eliminate 500 jobs. Schwab has gotten there largely by getting rid of temporary positions and leaving certain vacancies unfilled, said Christopher V. Dodds, chief financial officer. Its headcount now stands at 25,800.
And the company is eyeing other measures.
We will be looking harder at investment in advertising, Mr. Dodds said in an interview Thursday. And well be looking at whether we should do so much in new products and new services maybe we can defer a couple of those.
However, he said there are still no plans for layoffs. We view them as an appropriate measure if one sees a fundamental long-term change in our business model, and we havent seen that yet.
Mr. Dodds was speaking after the company released its monthly activity report for January, which showed customers conducted 26% fewer trades per day last month, at just over 222,000, than they did in January 2000. Trading volume was down 3% from December, though the company did see a 33% jump in net new assets, to $12.5 billion, in January from November, which was a particularly volatile month for the market.
Schwab is not alone in its belt-tightening as the heady days of the bull market in tech stocks become a distant memory and retail investors look for safer harbors for their money in the face of a slowing economy.
T.D. Waterhouse Group, the New York discount broker mostly owned by Toronto-Dominion Bank of Canada, is also eyeing cost-cutting measures. It too has curtailed hiring and eliminated 180 positions during its first quarter, which ended Jan. 31, as profits fell 35%.
As investors recoil from equity trading, some are moving to mutual funds. In January, Schwab did see some migration to mutual funds from individual stocks.
Trades through Schwabs Mutual Fund OneSource program, which offers customers thousands of mutual funds from different investment managers, were up 5% in January compared with December; however, there were 26% fewer trades than in January of last year, the company said.
Some analysts said it will be tough for Schwab to meet its profit forecasts. The consensus of analysts for the first quarter is 15 cents a share. Schwabs own customer education efforts may be the culprit, analysts said.
Roughly 50% of Schwabs customer assets are in individual stocks, and amid the ongoing volatility it has advised customers to diversify, said Mark Constant, an equity analyst with Lehman Brothers, in San Francisco, who cut his target price for the year by a dime, to 57 cents.
People are waking up and following their advice, Mr. Constant said. People tend to buy and hold mutual funds rather than trade them like stocks, a phenomenon that is bound to be less profitable for the company, he said.
Mr. Dodds conceded that having a customer conduct 10 or 12 stock trades a year at $29.95 a trade was more profitable. However, he added: Whats good for the customer is good for Schwab. We have to navigate our way through slower periods and through faster periods.
This is not Schwabs first hiring freeze. It instituted one in 1994 and another for a brief period in 1998. And were still hiring selectively, Mr. Dodds said. On Thursday there were 67 positions listed in the job-search area of the companys Web site. Most were relatively senior roles, such as branch manager.
In trading Thursday, Schwabs stock lost 1.45% to close at $24.40.
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