Wednesday, April 15, 2009

NEW YORK (AP) - Charles Schwab Corp. said Wednesday that its first-quarter earnings dropped 29 percent, but results easily beat Wall Street’s expectations.

Shares jumped more than 10 percent, or $1.69, to close at $18.05.

The San Francisco-based brokerage and investment manager earned $218 million, or 19 cents per share, down from $305 million, or 26 cents per share, a year earlier.

Results included a $26 million pretax gain related to the repurchase of debt. This was offset by $14 million in pretax impairment losses on certain mortgage-backed securities and $59 million in pretax severance-related charges.

Total revenue fell 15 percent to $1.11 billion.

Analysts had been expecting earnings of 15 cents per share on revenue of $1.07 billion, according to a poll by Thomson Reuters.

Chief Financial Officer Joseph Martinetto said results were largely in line with the company’s expectations, but that it’s too early to tell how the rest of the year will play out.

“Our phones are busy, our branches are busy so those are all good and encouraging signs,” Martinetto told The Associated Press during an interview. “That said, there are definitely some headwinds that persist as we move forward, namely in asset valuations and interest rates.”

In December, the Federal Reserve lowered its benchmark interest rate to a range of zero to 0.25 percent, and kept rates at those historically low levels at its last meeting in March. Lower interest rates mean Schwab earns less on its investments.

The company said asset inflows and further increases in client money market fund allocations helped offset an 18 percent decline in asset management and administration fees.

Schwab added $25.3 billion in net new client assets during the quarter, down 39 percent from the prior-year period. New accounts for the quarter totaled 43,200, down 20 percent year-over-year. Total accounts as of March 31, were 5.3 million, up 3 percent from the same time in 2008.

Total client assets as of the end of the quarter stood at $1.1 trillion, down 21 percent from $1.39 trillion at the end of the first quarter of 2008.

Client activity picked up during the quarter, with Schwab clients averaging 359,400 trades per day, up 10 percent from the first quarter of last year. This helped send trading revenue up 5 percent to $259 million.

Schwab’s results were aided by a recent change in financial accounting rules, that enabled the company to record a nominal impairment charge on certain securities.

Earlier this month, the board that sets U.S. accounting standards gave companies more leeway in valuing assets and reporting losses.

Under the new conditions, Schwab is required to estimate the amount of principal that it won’t be able to recognize before the maturity of certain bonds in its portfolio. This totaled $14 million this quarter. Without the rule change, the impairment charge would have been $150 million, the company said.

Schwab cut about 600 jobs during the first quarter as part of its overall plan to reduce expenses by 7 percent to 8 percent this year. As a result, Schwab recorded a $59 million pretax charge related to severance payments and other costs related to the expense reduction measures.

The company said it expects to record an additional $40 million in charges during the second quarter related to these efforts.

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