UPDATE: Schwab Warns On 4Q Profit, Cites Fee Waivers, Trading Drop
15 December 2009 - 3:27AM
Dow Jones News
Charles Schwab Corp. (SCHW) projected fourth-quarter profit
below analysts' estimates as the company said an acceleration in
money market fund fee waivers and a slowdown in trading volumes
will weigh on its results.
The news sent shares of Schwab, the largest discount broker by
market capitalization, down 55 cents, or 3%, to $17.67.
Schwab expects fourth-quarter earnings will be 2 cents to 4
cents a share lower than the third quarter's 17 cents. Analysts
polled by Thomson Reuters recently expected 17 cents for the fourth
quarter.
With interest rates near zero, Schwab has been waving fees on
its proprietary money market funds so that clients' yields don't
turn negative. The company said these waivers could reach $108
million in the fourth quarter. That figure would equal the amount
that Schwab has already waived this year.
Last month at its fall business update, the company said it
would waive roughly $100 million in these fees. Typically, fees and
commissions account for less than half of Schwab's quarterly
revenue.
Schwab also said it received $6 billion in net new assets last
month from customers. Average client trades, however, tumbled 27%
from a year earlier and 11% from October. Typically, trading
volumes fall to close out the year, but activity has declined
earlier than expected in 2009. Investors have been booking some of
their gains from the market's recovery and not putting that money
back into the market.
Earlier Monday, electronic trader Knight Capital Group Inc.
(NITE) said its U.S. equity trading volume fell 9.6%
month-to-month.
Meanwhile, Schwab said total assets at the end of November were
up 4% from a month earlier to $1.39 trillion. The company opened
122,000 new brokerage accounts last month, but the total of active
accounts rose just 22,000 to 7.66 million.
In a note to clients, Standard & Poor's Equity Research
analyst Matthew Albrecht said he expects "low rates to keep
pressure on fee income through most of 2010."
Albrecht reduced his 2009 earnings forecast on Schwab to 68
cents from 73 cents a share and cut his 2010 outlook to 79 cents
from 90 cents a share.
-By Tess Stynes, Dow Jones Newswires; 212-416-2481; Tess.Stynes@dowjones.com;
-By Brett Philbin, Dow Jones Newswires; 212-416-2173;
brett.philbin@dowjones.com
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