Faced with the continued decline in online stock trading by retail investors panicked by the market selloff, Charles Schwab Corp. said Thursday that it will consider job cuts to shore up profits.
In an interview after the nation's biggest discount broker released its February trading numbers, Christopher V. Dodds, Schwab's chief financial officer, said the company could announce layoffs by the end of the month. The announcement came after several other recent cost-cutting attempts by the San Francisco company and during a bloody week in the stock market.
Mr. Dodds said it is unlikely that the company will meet analysts' consensus estimate for first-quarter earnings, which on Thursday morning was still 13 cents a share, according to First Call/Thomson Financial.
"We are considering mandatory staff reductions as part of our approach to bringing down our expenses," he said.
Each business unit has been given "pretty aggressive expense cuts for the year," Mr. Dodds said, adding that some business lines may only meet their targets through layoffs. However, he declined to say which units would be the most affected.
Schwab has eliminated 850 jobs in the last two months, shrinking its payroll to 25,500, by enforcing what some analysts described as an "aggressive attrition" policy companywide. The broker clamped down on temporary jobs and refrained from filling vacant posts.
And though the company has not introduced a complete hiring freeze, Mr. Dodds said, "we're hiring extremely selectively." Schwab is adding roughly 30 to 50 people a month, which is well below normal, he said.
For February, Schwab said, average daily trading volume fell 31%, to 244,600 trades, from the year earlier (just before the Nasdaq stock market peaked). The technology-heavy Nasdaq is now roughly 61% off its high.
Schwab attracted about $8.5 billion of net new assets last month, but existing assets shed 8% of their value, to $844.8 billion, as volatility continued to batter customer portfolios.
Though the declining stock market has affected all financial service companies, prompting layoffs at institutions such as Goldman, Sachs & Co., Merrill Lynch & Co., and Bear Stearns Cos., the online brokers have been hit particularly hard. Trading equities online, which just two years ago was almost a national pastime, does not hold the same attraction for people whose confidence is eroding along with their stock market gains.
Ameritrade Holding Corp., the Omaha online broker, has cut staff, and just this week, CSFBdirect, the Jersey City brokerage arm of Credit Suisse First Boston, laid off 150 workers when it shuttered a call center. Last week, Ameritrade said it is likely to post operating losses during the second quarter because of the slowdown. TD Waterhouse Group, the discount broker mostly owned by Toronto-Dominion Bank, said it will watch costs and continue to allow its head count to drop after daily trading numbers declined 10% during February.
Schwab has been "prudent" in holding its fire until now, according to Glenn Schorr, an equity analyst at Deutsche Bank in New York, who is looking for the company to earn 11 cents a share this quarter.
Schwab has been creative in looking for ways to cut costs up till now, halving the pay of its top executives and forcing employees to take mandatory vacation days so it can remove that cost from its accounting process. The pay cuts, which do not affect stock options, remain in force until further notice, Mr. Dodds said. Schwab has also reduced its ad spending for this year by about 20%, to roughly $330 million, Mr. Dodds said.
"Companies like Schwab have to very careful not to cut into muscle as opposed to fat," said Deutsche Bank's Mr. Schorr. "They don't want to be caught off guard if the market comes back." Areas where they could cut costs include technology and back-office functions, he said.
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