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Charles Schwab’s earnings more than triple

Charles Schwab Corp.’s fourth-quarter earnings more than tripled as the discount brokerage slashed fees, capping the most profitable year in its 30-year history.
/ Source: The Associated Press

Charles Schwab Corp.’s fourth-quarter earnings more than tripled as the discount brokerage slashed fees, capping the most profitable year in its 30-year history.

Net income totaled $187 million, or 14 cents per share, during the final three months of 2005, up from $53 million, or 4 cents per share, at the same time in 2004. The earnings matched the average estimate of analysts surveyed by Thomson Financial.

San Francisco-based Schwab’s revenue totaled $1.18 billion in the quarter, an 11 percent increase from $1.06 billion in the 2004 period.

For the entire year, Schwab made $725 million, or 55 cents per share, up from $286 million, or 21 cents a share a year ago. The performance eclipsed its previous largest annual profit of $718 million posted in 2000, when the brokerage was expanding rapidly to handle the manic stock trading provoked by the dot-com boom.

But investors throttled back after getting burned in the ensuing bust, plunging the brokerage into a deep slump that triggered thousands of layoffs and prompted the management team to introduce an array of new fees that alienated customers accustomed to bargain prices.

The troubles culminated in the July 2004 ouster of Chief Executive David Pottruck to clear the way for the return of founder Charles Schwab, who continued to cut costs while also dramatically lowering fees to win back customers.

The strategy paid off last year, helping to lift Schwab’s long-sagging stock price, although the company’s shares shed 12 cents to $14.86 during Wednesday’s late morning trading on the Nasdaq Stock Market. Schwab’s market value has climbed by nearly 80 percent since its founder took back the reins, adding about $8 billion in shareholder wealth.

Other things have changed, too.

By the end of 2005, the brokerage’s trading commissions averaged $13.66 per transaction, a 55 percent reduction from an average of $30.06 in the quarter before Charles Schwab reassumed control. Revenue-generating trades surged in the final quarter of 2005 to an average 229,500 per day, up from 142,200 in mid-2004.

Meanwhile, Schwab spent $60 million on a fourth-quarter advertising campaign that appears to be drawing in new customers while persuading existing clients to entrust more of their money with the company.

Schwab opened 153,400 new accounts in the fourth quarter, the most since the first three months of 2004. The total amount of money held in customer accounts has increased by at least $6 billion during each of last seven months.

“We look back on the past year and can say with a great degree of satisfaction that we delivered on what we promised to our clients and our shareholders,” Christopher Dodds, Schwab’s chief financial officer, said during a Wednesday interview.

Even with all the brokerage’s progress, Schwab’s stock price remains far below its 1999 high of $51.67, and its revenue still hasn’t rebounded to the boom days.

For the entire year, Schwab’s sales edged up 6 percent to $4.64 billion from $4.2 billion in 2004. The company’s revenue peaked in 2000 at $5.79 billion.

The erosion has forced Schwab to do more with fewer employees, although the company added 400 workers to its payroll during the final half of 2005. Schwab currently employs 14,000 workers, down from more than 26,000 at the end of 2000.