Charles Schwab Corp. is expected to go on a selling spree that could see the pioneering discount brokerage unload U.S. Trust, Schwab SoundView Capital Markets and its market-maker operations, sources said.
Talk of the possible sales have been circulating within the company over the last few months as Schwab launched a broad review of all its operations. That speculation intensified with this week's firing of CEO David Pottruck, a former employee said.
A company spokesman declined to comment on the sales speculation, but insiders and several analysts foresee the company returning to its roots as Chairman Charles Schwab once again takes the reins as CEO.
"Schwab is currently pursuing too many strategies in its attempt to be all things to all people," Daniel Goldberg, a Bear Stearns analyst, said in a research note to clients following Pottruck's sudden departure. "We would not be surprised to see a paring back of some underperforming businesses."
Well ahead of Pottruck's exit, insiders said Schwab was assessing the strategic fit of U.S. Trust, the private bank for the wealthy that was acquired by Schwab near the peak of the stock market bubble in 2000 for $3.2 billion. Pottruck, who was a client of U.S. Trust prior to its purchase by Schwab, had hoped that Schwab's customers would graduate into U.S. Trust's client base. But U.S. Trust has never mixed well with Schwab's corporate culture and its focus on middle-income investors.
Meanwhile, U.S. Trust has lost more than 300 wealth advisers and client advisers since Schwab's acquisition of the firm, the Wall Street Journal reported this week, citing sources familiar with the situation.
Also possibly heading to the auction block, insiders said, is SoundView, the securities firm that Schwab purchased just eight months ago for $324 million. Schwab reportedly hired a boutique investment bank, Greenhill & Co., to explore selling SoundView.
The Wall Street Journal reported that one person close to the situation said Pottruck didn't tell the board about his decision to hire Greenhill, and that some board members felt he had overstepped his authority.
The company's market-maker operation is also a candidate for sale, one insider said. Mayer & Schweitzer, acquired in 1991 and now part of Schwab's capital markets operations, is an OTC market maker that accounts for 7 percent of all Nasdaq trades. But that business has come under pressure as the advent of decimalization, the trading of stocks in dollars and cents rather than dollars and fractions, cuts into profitability. Decimal trading saves investors money by narrowing the spread between bid and asked prices. But that's bad news for Wall Street's brokerages.
Chief Financial Officer Christopher Dodds told analysts and investors in a conference call, in which Pottruck's departure was announced, that the company was assessing everything and that further job cuts lie ahead as the company tries to reduce expenses by $150 million to $200 million by year-end.
Company employees say they fear the job cuts will reach into the thousands. Denying that figure, a company spokesman said no target has been set. But the spokesman said he understood employees' fears that the number could be that high. He noted that there were other ways the company could save money other than layoffs.
In the second quarter, Schwab cut about 200 jobs, primarily at a call center in Orlando, Fla. The firm has reportedly eliminated 250 to 275 other positions since the beginning of July.
Dodds said the company's internal assessment will be comprehensive.
"There are no sacred cows," Dodds told investors. "Everything is on the table in terms of what we do, what businesses we are engaged in and how much patience we have with this or that."