The world's largest online and discount broker, the Charles Schwab Corporation, appears to be suffering this year as a result of investor concerns about sagging corporate earnings, it was revealed on Thursday. The company reported that trading in January was recorded at 281,000 trades per day, a figure 26% lower than that for January 2000, and representing a decrease of 3% from December of last year.
TD Waterhouse, another of the key mainstream online investment brokers also reported a 30% fall in profits and a 9% decline in revenues compared with the same quarter a year ago. Despite the fact that account growth at Schwab remains on target, with 100,000 new accounts attracted in January, smaller investors seem reluctant to trade in anything near the volume experienced last year, preferring instead to allocate more of their investment to mutual funds. Christopher Dodds, the chief financial officer at Schwab, explained: 'What we are seeing across all of our 7.5m accounts is that the more mainstream investors are more often than not saying they'll wait until things clear up.'
Although brokerages that focus on active traders, such as Datek and Ameritrade fared slightly better in January, figures released by Datek this week indicated that it too has suffered a 15% drop in trading this month, averaging fewer than 100,000 trades per day, so far.
Dodds expressed concerns that if the trend continues, Schwab may have problems meeting its earnings estimates for the first quarter: 'Given this kind of trading environment, we think that achieving the (first quarter) consensus estimate will be quite difficult.'
It appears that the company has taken the gravity of the situation on board, however, and in addition to the suspension of UK and pan-European plans, 750 top managers, including the co-chief executive, David Pottruck, have taken pay cuts of up to 50% until the decline in trading volumes recovers.
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