Schwab Suffered In Second Quarter

by Philip Morton, Investors Offshore.com

19 July 2001

One-time leading light of the online brokerage set, Charles Schwab, announced recently that it is suffering as a result of the continued bear market. The organisation, which posted sharply declining earnings for the second quarter on Tuesday, had already warned last month that it was unlikely to meet Wall Street expectations due to an unexpectedly large number of retail investors still sitting on the sidelines.

The market downturn has affected several of Schwab's revenue streams quite badly, and the company reported a 28% drop in net interest income as a result of fewer margin loans being taken out, as well as a 37% decline in trading commissions. Schwab executives admit to being a little surprised by the disappointing spring and early summer results. 'We certainly expected a few more people to trade in June,' said the company's CFO, Chris Dodds. However, he added that Schwab is 'laying the groundwork for when the markets recover.'

Costs have already been cut using massive layoffs and other measures, and the organisation is now focussing its energies on building up specialties in advice and personalised financial services for the very wealthy, although as many of its peers are also rushing to jump on the wealth management bandwagon, this sector is beginning to look as dangerously overcrowded as was the online brokerage market last year.

Meanwhile, in its dwindling retail investment enterprise, in a bid to increase customer profitability amid reduced trading, Schwab recently introduced a maintenance fee of $30 a quarter for certain inactive accounts holding under $50,000. However, despite such charges, and the poor conditions which have led the company to downshift, Schwab reports that it is still getting more new accounts through the door than some of its competitors, with a total of 266,000 new accounts having been opened this quarter.

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