Charles Schwab Corp., the largest independent brokerage by client assets, reported third-quarter profit that met projections after it settled claims about misleading investors and revenue from trading declined.
Charles Schwab Corp., the largest independent brokerage by client assets, reported third-quarter profit that met projections after it settled claims about misleading investors and revenue from trading declined. The company also reported an uptick in custody assets.
Net income fell 27 percent to $119 million, or 10 cents a share, from $164 million, or 14 cents, a year earlier, the San Francisco-based company said in a statement today. Results matched the 10-cent estimate of analysts surveyed by Bloomberg. Trading revenue slipped 8 percent to $206 million, according to the release.
The company's Schwab Advisor Services custody unit took in $16.4 billion in net new assets in its for the fourth quarter.
The custody business continues to bring in more assets than Schwab's individual investor business. Schwab's Investor Services unit raised $5 billion in net new assets in the last quarter of 2010.
Last year, Schwab landed $78.1 billion in net new assets overall, which was more than any other firm, said chief executive Walt Bettinger in a statement.
Schwab-affiliated RIA firms held $655 billion in assets at the firm at year-end, up from $590 billion as of December 2009.
Total assets at the firm reached $1.57 trillion, up from $1.42 trillion at the end of 2009.
Schwab took a one-time charge during the quarter to settle claims related to 2008 investments in mortgage-backed securities for its YieldPlus fund. While the Federal Reserve has kept its interest rate near zero since December 2008, curbing revenue increases for the brokerage, Schwab has added client assets as the outlook for the U.S. economy improved and investors began to increase their risk appetite.
“Cyclical headwinds for Schwab's asset-gathering business have begun to reverse as U.S. equity flows turned positive for the first time since the ‘flash crash,'” Chris Ross, a New York-based analyst with Macquarie Group Ltd., wrote in a Jan. 10 note, referring to the May 6 equity plunge that erased $862 billion in value in 20 minutes. That signals “a more bullish investor sentiment, a prelude to stronger client trading levels.”
Stock Performance
The shares declined 1.5 percent to $18.54 at 10:36 a.m. New York time. They slid 9.1 percent in 2010, the third-worst among the members of the NYSE Arca Securities Broker/Dealer Index, which advanced 5.6 percent.
Total sales climbed 14 percent to $1.13 billion, exceeding the $1.11 billion average projection of 13 analysts surveyed by Bloomberg.
TD Ameritrade Holding Corp. reported earnings of 25 cents a share earlier today, matching analyst forecasts. Analysts expect E*Trade Financial Corp. to post a profit of 4 cents a share when it reports fourth-quarter results on Jan. 26, according to the average of estimates compiled by Bloomberg.
Schwab agreed this month to pay $119 million to settle U.S. regulatory claims that it misled investors about the amount of mortgage-backed securities it held in its YieldPlus Fund, changing the investment strategy without shareholder approval. The company settled the claims without admitting or denying wrongdoing.
The announced settlement “should remove the remaining YieldPlus overhang from the stock by allowing the company to resolve this issue, once and for all, in a managed way,” Alex Kramm, a New York-based analyst with UBS AG, wrote in a note. He maintained a “buy” rating on the shares.
Separately, Schwab rival TD Ameritrade Holding Corp. also announced financial results today, posting fully diluted earnings per share of 25 cents in the fourth quarter of 2010, up from 23 cents from the same period a year ago. Net revenues rose to $656.2 million, up from $624.6 million.
Active traders and clients of the firm's RIAs are back in the stock market, said Fred Tomczyk, president and chief executive officer, on a conference call with analysts.
The firm brought in net new client assets of $9.7 billion for the quarter, up from $8.7 billion a year ago. Total client assets reach a record $386 billion as of year-end.
TD Ameritrade does not break out data for its custody business, but Mr. Tomczyk said RIA assets were about a third of the total, and that its custody clients were bringing in assets at about two times the rate of its discount broker side.
Dan Jamieson and Bloomberg News
