NEW YORK – Charles Schwab Corp. (SCH), the largest online brokerage, on Friday said it would cut its online stock-trading commissions by 35 percent for small investors, the latest volley in a price war among brokers.
It marks the second time in three months that Schwab has sliced its rates on stock trades and also demonstrates the relentless price compression to which many electronic trading venues have had to resort in order to draw in customers.
U.S. investors with accounts of $50,000 to $1 million at the firm will now pay $12.95 per trade, down from $19.95, effective Feb. 8. The lower price also applies to clients who trade nine to 29 times a quarter.
In November, Schwab cut its base commission rate for online stock trades to $19.95 from $29.95. Earlier this month, it also cut the minimum level of assets clients need to avoid paying certain types of fees -- to $25,000 from $50,000.
The San Francisco company expects the new pricing structure announced on Friday to reduce its consolidated revenue by about 1 percent from current levels during the first 12 months. Yet Schwab affirmed its target of generating a 25 percent pretax operating profit margin this year and at least a 15 percent return on stockholders equity.
In late afternoon trading on the New York Stock Exchange (search), Schwab's stock was down 30 cents, or 2.8 percent, at $10.40.
"Schwab's shares continue to get discounted on each incremental price cut in the retail stock trade marketplace, as if the continuation of the price war is an incremental surprise," noted David Trone and Edward Ditmire, analysts at Fox Pitt Kelton, in a research note to clients on Friday.
"At this point, our DCF (discounted cash flow (search)) models tell us that Schwab is now trading below a doomsday-scenario where the company comes to lose all of its commission revenue, which is currently about 17 percent of revenue," they added.
The company said that during the second quarter it expects to unveil a comparable pricing for clients who trade through the 5,000 financial advisers affiliated with Schwab and who also enroll in electronic report delivery.
Traders making at least 30 stock or options trades per quarter, or those with more than $1 million in household assets will continue to pay $9.95 per trade.