Schwab says drop in daily trading volume will cut into 4Q earnings

The Charles Schwab Corp. said daily trading volume dropped 27% in November from a year ago. That dropoff will cut into fourth-quarter profits, the retail brokerage said Monday. Schwab said it expects earnings in the fourth quarter will fall 2 cents to 4 cents per share below its third-quarter profit of 17 cents per share. Schwab chief financial officer Joe Martinetto said the company's lower forecast was due to declining trading and low yields for Schwab's money market mutual funds, along with a normal seasonal increase in the company's marketing costs. With low interest rates pushing down yields for many companies' money funds, those funds' sponsors have temporarily waived management fees. Mr. Martinetto said Schwab believes the waivers it provides for its money funds "could increase by approximately $30 million over the third-quarter total of $78 million." Schwab reported its total clients' average daily trading volume was 297,100 in November, down 27% from November 2008, and down 11% from the prior month. Specifically, daily average trades for retail clients were down 18% from the previous November, while average trades for adviser services clients were down 48%. Net new and existing clients brought $6 billion in net new assets to Schwab in November. While that marked a 2% increase in net new assets from November 2008, the total was down 30% from October. Overall, the company's total client assets were valued at nearly $1.4 trillion at the end of the month — a 26% bump-up from November 2008. Mr. Martinetto said Schwab remains "well-positioned to generate increased revenues as soon as interest rates stabilize. FBR Research issued a research note on Schwab noting that it expects the firm to provide 2010 earnings guidance in January that is well below current consensus estimates. Nevertheless, FBR noted that it likes Schwab's franchise and believes earnings will trough in 2010. Schwab's stock price was down about 3% in morning trading. (The Associated Press contributed to this article)