Schwab's 3Q earnings drop 34%, but adviser business a bright spot

While The Charles Schwab Corp. reported a 34% drop in overall earnings for the third quarter, its adviser services business proved to be a bright spot. The unit pulled in $11.1 billion in net new assets during the third quarter. Although that was $3 billion less than it gleaned in the year-earlier period, it represented a 44% increase from the second quarter and gave it its best three-month period thus far in 2009. It also was the first time in more than a year that the unit's assets increased quarter-over-quarter. Schwab's adviser services unit logged $9.6 billion and $7.7 billion in net new assets, respectively, in this year's first and second quarters. In the third quarter of 2008, the unit brought in $14.1 billion in net new assets. The third-quarter gains in the adviser services group were responsible for the bulk of the $19.9 billion of total net new assets that Schwab reported for the period, with executives pointing out that there was an increase in demand for financial advisers' guidance during the quarter. “Right now, some individuals are relying on professional guidance to rebuild their participation in the equity markets, while others remain more comfortable emphasizing low-risk cash and [Federal Deposit Insurance Corp.]-insured deposit products,” CEO Walter W. Bettinger II said in the company's earnings statement, which was released this morning. “In addition, the independent advisers served by Schwab are seeing increased demand for their expertise.” Overall, Schwab said net new accounts for the quarter totaled 29,000, up 41% year-over-year. But a slowdown in trading activity and a sharp drop in fee revenue weighed on the company's results. The company earned $200 million, or 17 cents a share, in the three-month period ended Sept. 30, down from $304 million, or 26 cents per share, in the year-earlier period. Results were in line with what analysts expected. Revenue fell 19 percent to $1.01 billion, just shy of Wall Street's estimate of $1.03 billion. Client activity slowed during the quarter, with Schwab clients averaging 318,500 trades per day, down 5% from the third quarter of last year. This sent trading revenue down 4% to $241 million. Asset management and administration fees declined 24% during the quarter to $451 million. Rock-bottom interest rates ate into the returns Schwab earned on its investments. Net interest revenue fell 34% year-over-year to $294 million. The Federal Reserve has kept its benchmark interest rate at a record low of near zero and does not plan to raise the rate anytime soon. The Associated Press contributed to this story