Charles Schwab beats the Street

Charles Schwab beats the Street
Charles Schwab Corp., the largest independent brokerage by client assets, reported third-quarter profit that beat the average analyst estimate as sales from earned interest offset a decline in trading revenue.
OCT 10, 2010
Charles Schwab Corp., the largest independent brokerage by client assets, reported third-quarter profit that beat the average analyst estimate as sales from earned interest offset a decline in trading revenue. Net income fell to $124 million, or 10 cents a share, from $200 million, or 17 cents, a year earlier, the San Francisco- based company said in a statement today. Analysts estimated profit of 9 cents, according to the average in a Bloomberg survey. The brokerage has been weathering a near-zero interest rate environment since December 2008. About one third of last year’s revenue came from interest earned on cash in its bank and money market funds, while about 45 percent was from fees for managing and administering assets. Third quarter results included a charge of about $132 million to cover losses related to 2008 investments in mortgage-backed securities in its money market fund, as the company had disclosed last month. “Operating earnings at Schwab should continue to grow as the company builds its client asset base and balance sheet, lowers its cost of funds, and reinvests lower-yielding cash into longer-dated securities,” Matt Snowling, an analyst with Arlington, Virginia-based FBR Capital Markets, wrote in a Sept. 15 note. Schwab said it also took a pretax charge of about $20 million for ending a credit-card sponsorship, according to a Sept. 15 statement. Schwab trades at 16.3 times 2011 estimated earnings, the cheapest since July 2009, according to Bloomberg data. The shares rose 0.8 percent to $14.20 at 9:10 a.m. New York time. Before today, they had lost 25 percent year-to-date. That compares with a 5.3 percent gain in the S&P 500 and a 7.2 percent decline for the NYSE Arca Securities Broker/Dealer Index. Competitors E*Trade Financial Corp. and TD Ameritrade Holding Corp. are scheduled to report quarterly results next week. Analysts expect E*Trade to post a profit of 4 cents a share, while TD Ameritrade should return a gain of 23 cents, according to the average of estimates compiled by Bloomberg. Bloomberg

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