Schwab announces 47% drop in net income – and a stock offering

The stock price of The Charles Schwab Corp. fell 2.5% to $18.81 in after-hours trading after the company announced plans to sell more than 26 million shares of common stock. The discount broker and leading custodian for registered investment advisers also reported that its fourth-quarter net income fell 47% from the year-earlier period to $164 million. Schwab last month signaled that it would report weaker results. Like its competitor TD Ameritrade Holding Corp., which earlier today reported lower-than-expected quarterly earnings, Schwab attributed the results to low interest rates that forced it to waive $110 million of fees on money market funds last quarter, along with weak trading activity by retail investors. The company had previously warned that the waivers could total about $108 million. Schwab's net interest revenue for all of 2009 fell by 28%. Schwab Advisor Services boasted that it helped 172 teams of securities brokers establish themselves as newly independent RIAs in 2009. Today Fidelity Investments said it aided the setup of about 190 teams of brokers as RIAs that either custody with the firm or are affiliated with independent broker-dealers that clear through the company. Schwab does not have a correspondent-clearing business. Average daily trades made for clients of advisers fell 51% in the fourth quarter from a year earlier at Schwab and were off 2% from the average in last year's third quarter. Average daily trades for the firm's direct retail clients fell 23% from a year earlier and 12% from the third quarter. Schwab this week reduced cut its online equity-trading commissions and non-Schwab ETF commissions for all clients to $8.95 a trade, a move it said would generate a $15 million to $20 million hit to its first-quarter-2010 revenue. (Schwab doesn't charge commissions to clients on its proprietary ETFs.) TD Ameritrade chief executive Fred Tomczyk said Thursday that it has no plans to reduce its online stock commissions of $9.99 a trade. UBS is the book runner on the Schwab stock offering. Beyond the 26 million shares, the broker also set aside 3.9 million shares as a green shoe. At the end of the trading day Tuesday, Schwab's stock price closed at $19.29, a 1.53% gain.