Charles Schwab Books First Net Loss in 14 Years

NEW YORK – Charles Schwab Corp., the top U.S. discount brokerage, on Tuesday booked its first net loss in 14 years, as costs from deep staff cuts and a drop in customer stock trading took a heavy toll.

The San Francisco-based company, which has $846 billion in client assets, has seen its earnings tumble and its stock price plunge amid steep declines in the stock market. Schwab, which was one of the fastest-growing financial firms of the 1990s, last year cut 25 percent of its staff, or about 7,000 jobs, to cope with the weaker business.

"The restructuring has brought down the expense base and every day that goes by, we get more and more confident that the worst is behind us," Chistopher Dodds, Schwab's chief financial officer, told Reuters in an interview. He added that the firm has no plans to cut its work force further.

Schwab posted a loss of $13 million, or a penny per share, in the fourth quarter -- a far cry from its profit of $139 million, or 10 cents a share, in the same period last year.

Costs related to acquisitions and staff cuts came in at $175 million in the period, wiping away profits and putting Schwab in the red for the first time since late 1987.

The reaction on Wall Street was decidedly benign, however, as investors saw no surprises in the results. Schwab shares were up 9 cents at $16.11 in midday trading on the New York Stock Exchange Tuesday, putting the stock in the center of its trading range over the past year.

WEAK CONDITIONS

Excluding restructuring charges and other costs, the brokerage reported a profit of $109 million, or 8 cents a share, for the quarter. That was down 32 percent from $161 million, or 11 cents a share, a year earlier.

Analysts had forecast earnings of 6 cents to 10 cents a share, with a consensus projection of 8 cents, according to research firm Thomson Financial/First Call.

Total revenues dipped to $1.1 billion from $1.3 billion.

As for customer stock trading, Schwab booked commission revenues of $330 million in the fourth quarter, down nearly 33 percent from $489 million last year. Average daily commission trades fell to 148,000 per day from 220,000 a year ago, underscoring investors' reluctance to play into weakened stock markets. Schwab said the number of new customer accounts opened in the fourth-quarter fell 30 percent from a year earlier.

Customer stock trading has been on the rise in recent months, but there are no indications of the type of fervor among ordinary investors that helped raise Schwab to its late-nineties height, Dodds said.

"We have not yet seen the confidence level of the retail investor return such that they are willing to leverage themselves a bit," Dodds said, referring to investors' buying stock via margin loans. "So, we certainly don't see any signs of euphoria or dramatically heightened risk taking, but there's a lot of pain out there."

Schwab, which is known for its ability to bring in huge amounts of customer cash on a steady basis, pulled in $14 billion in net new assets in the fourth quarter. But that was only one-third of the $41 billion it brought in a year earlier.

Stock market bloodletting in 2001 hurt business at big financial companies, prompting many investors to sell their stakes in companies such as Schwab. The firm's shares plummeted 45 percent last year, vastly underperforming the Amex Broker-Dealer Index of its peers, which fell 9 percent.

Schwab's asset management operations provided a bright spot in the quarterly results. The company, which is pushing hard to beef up its asset management and financial advice services, said fees from such businesses totaled $436 million in the fourth quarter, up 6 percent from $411 million a year earlier.