Charles Schwab Corp. continues to wrestle with how to retain retail customers while keeping costs down and boosting revenues.
The San Francisco brokerage company said Thursday that next quarter it would close 19 full-service branches in metropolitan areas nationwide while opening 54 "satellite" offices with fewer employees and appointment-only access to Schwab consultants.
Schwab is migrating back to its roots as a retail broker to reclaim customers who have been tempted to defect to lower-cost competitors. Its identity crisis has been both public and painful. Last month it shed its institutional arm, and in July it fired its chief executive officer, David S. Pottruck. Rankled by the direction in which Mr. Pottruck had taken the company and by declining profits, Charles R. Schwab, the company's founder, took back the helm.
The brokerage has already cut trading commissions twice since June, and it is not ruling out another price cut, said Walter Bettinger, an executive vice president who heads up the company's branch network.
"I think pricing is a process, not an event," Mr. Bettinger said in a telephone interview Thursday. "We have indicated that we will continue to look at pricing."
Mr. Bettinger said the latest branch consolidation is driven by Schwab's strategy of focusing on clients and their needs. (The company shuttered 53 full-service branches in the second quarter.)
Clients "have been very clear about two things they're looking for from Schwab, competitive pricing and the need to have a relationship with a 'local face' from Schwab," he said. The new offices will focus on Schwab's relationship-driven services rather that its transactional business, he said. The consolidation and branch openings are both nationwide moves, said a spokeswoman, who declined to be more specific until employees are notified.
Mr. Bettinger said Schwab plans to consolidate branches in areas where there are offices within nine miles of each other. Under the new structure, 85% of all Schwab customers will be within 20 miles of a Schwab office, he said. The company has 286 offices, two of which were opened in recent weeks, and will end up with 282.
Schwab will close 19 full-service branches and convert 39 of its existing sites to satellite offices. It will also add 15 satellite offices to reach the total of 282 when the closings and conversions are complete next year, a spokeswoman said.
Mr. Bettinger said the company is trying to strike an "optimal balance" between client needs and cost savings.
Just how much the company will save on the stripped-down branches is unclear. Full-service branches can employ from three to 12 people, but the satellite offices are to employ only one or two. Mr. Bettinger declined to comment on the potential cost savings. But he said that any layoffs from the consolidation were included in those announced last month, when the company reported third-quarter earnings and said it would cut another 400 to 500 jobs - about 3% of its work force - this quarter as it continues to bring expenses in line with lower revenue.
In its quarterly filing last week with the Securities and Exchange Commission, the company said charges associated with its fourth-quarter restructuring would be about $65 million, or $40 million after taxes. Schwab intends to achieve $275 million of annualized cost savings this year.
"I don't think they are lost in their vision," said analyst Kenneth Worthington of Canadian Imperial Bank of Commerce's CIBC World Markets unit. However, he added, "they are trying to do a slightly higher-touch model, and they are trying to do it on less revenue per trade.
"My guess is, you will continue to see the model being tweaked as they continue to learn more about their customers," Mr. Worthington said.
On Oct. 15, Schwab reported a third-quarter loss of $41 million, compared to profits of $127 million a year earlier and $113 million in the second quarter. The loss was driven by $70 million of after-tax charges for the cost-cutting effort and $87 million of after-tax losses on discontinued operations. Thanks to slow retail trading activity and its new lower trading commissions, Schwab's revenue - excluding discontinued operations - fell 1%, to $986 million, during the third quarter.
But there were some positive signs on Friday, when Schwab reported its monthly trading numbers for October, which showed that retail investors traded more last month than they had in September.
Schwab reported that customers made 153,700 daily average revenue trades last month, a 16% increase from September activity. However, this volume was down 1% from October 2003, the company said.
In a research note Friday morning, Daniel Goldberg, a Bear Stearns & Co. analyst, said he was heartened by the October trading results and in particular by preliminary numbers for early November. The latter showed volume for the first eight trading days of this month as 23% ahead of retail trading volume in October.
Still, both Mr. Goldberg and CIBC's Mr. Worthington said they expect further cost-cutting. "We believe more restructuring is on the horizon, and we look forward to further announcements in this regard," Mr. Goldberg wrote in Friday's note.
Mr. Worthington also expressed optimism about the possibility of more expense reductions and their possible effect on the bottom line at Schwab. "They are so focused on cost cuts right now that you will see the earnings improve for the company," he predicted.
