Schwab posts highest profit since 2008, shares jump
Charles Schwab Corp, a U.S. discount broker, posted its highest quarterly profit since the financial crisis on Tuesday as the rising U.S. stock market fueled more customer trading.
The broker's shares rose as much as 8.1 percent.
Schwab's third-quarter revenue of $1.37 billion was its best since the height of the Internet bubble more than a decade ago. The company offered a rosy outlook, helped by higher revenue and tamped-down expenses.
The rising U.S. stock market also helped the company. With the Federal Reserve unlikely to scale back its bond-buying stimulus program, the stock market has been jumping.
Schwab said it benefited from the economic recovery, but also from winning more assets from clients. In the traditionally slow summer quarter, it gained $43 billion in net new assets, 97 percent higher than a year earlier.
Schwab is selling more services to clients this year. It historically focused on serving individual investors making their own investment choices, but is now also offering advice for a fee. The company said $1 trillion of its $2.15 trillion of client assets were enrolled in some form of advice program.
About 74,000 of Schwab's 8.7 million brokerage account clients this year received financial plans, which advise customers on how to manage their money. Last quarter, 26,000 clients received a plan, a 63 percent increase over last year's third quarter.
The broker's strategy of selling a range of retirement, savings and investments products has also been adopted by big rivals such as UBS Wealth Americas , Wells Fargo & Co's Wells Fargo Advisors and Bank of America Corp's Merrill Lynch wealth management arm.
Charles Schwab said third-quarter profit rose 17 percent from a year earlier to $290 million. Earnings per share of 22 cents beat analysts' average estimate of 20 cents, according to Thomson Reuters I/B/E/S.
Shares of Schwab, which have gained 55 percent this year including reinvested dividends, soared 8.1 percent to $23.79 in morning trading and were up 6 percent at midday. The broader market and most financial services stocks were trading down.
Schwab's third-quarter revenue was the highest in more than a decade, even though historically low interest rates have weighed on its money market funds. The broker waived a record $180 million in fees on the funds, because in a low-yielding environment they would have otherwise had negative returns.
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The company said it expects revenue to rise 3 percent to 5 percent faster than expenses in 2014, a sign that the retail brokerage giant is taming costs and continues to collect assets from clients at a strong pace.
Schwab reiterated that if the economy continues to recover and interest rates remain at current levels, it will become more profitable.
For all of 2013, Schwab expects revenue to outpace expenses by 1 percent to 2 percent, pretax profit margin to stay at a minimum of 30 percent, and earnings per share in the mid-70-cent range. Pretax profit margin in the third quarter was 33.8 percent, its highest level this year, partly reflecting cuts Schwab has made in its marketing, hiring and project budgets.
Like many of its competitors, Schwab also said it was still collecting new assets at a blistering pace. In the traditionally slow summer quarter, its net new assets of $43 billion were 97 percent higher than a year earlier.
Schwab also indicated that clients appeared to be regaining confidence in the market. It added about 16,000 net new retail brokerage accounts, 14 percent more than a year earlier.
Customer trading volume, Schwab's traditional measure of client confidence and risk-taking, rose 6 percent in September from a year earlier to an average of 469,200 trades a day, but was flat with August's volume.
Randy Frederick, who oversees Schwab's business for active traders, said last week that trading volume among all retail investors had not been keeping pace with the broad rise in stock markets, a sign that investors were letting their profits ride and waiting for dips to buy.
However, Schwab clients were pulling money out of large-cap stock mutual funds in August and September, while buying international and small-to-mid-cap stock funds, another sign of rising risk appetite.
(Reporting by Jed Horowitz; Editing by Kenneth Barry, Lisa Von Ahn and Jim Marshall)