Charles Schwab Corp. announced another wave of price cuts Wednesday, continuing a trend that has rejuvenated the stock brokerage as it returned to its discounting roots.
With the price decreases effective July 1, Schwab’s top commission for an online trade of up to 1,000 shares will fall by $7, or 35 percent, to $12.95 — still slightly above Internet rivals like TD Ameritrade Holding Corp. and Scottrade Inc.
The latest price decreases are being made amid recent investor queasiness that threatens to weaken Schwab’s robust earnings growth during the past year.
The San Francisco-based company expects to match or fall a penny below analysts’ current earnings expectations, according to Christopher Dodds, Schwab’s chief financial officer.
But most of the profit piled up during April and May when the bellwether Dow Jones industrial average was flirting with its record high of six years ago.
“June has been very tough in the equity markets,” Dodds said during a Wednesday interview. “Right now, it’s too close to call” whether Schwab will be able to hit the 20 cents per share earnings target set by analysts surveyed by Thomson Financial.
Schwab shares fell 14 cents to $14.44 during Wednesday’s afternoon trading on the Nasdaq Stock Market. The shares have slipped by more than 20 percent since hitting their 52-week high of $18.53 early last month, reflecting investor worries about how the stock market slowdown will affect the brokerage’s fortunes. Schwab’s stock price has dipped as low as $11.20 during the past year.
Even if the second-quarter earnings end up at 19 cents per share, it will keep Schwab on a pace to surpass the record annual profit that it achieved in 2000 when the company was still reveling in the stock market trading frenzy triggered by the dot-com boom and subsequent meltdown.
The company’s comeback coincided with a decision two years ago to dismantle a maze of higher prices and new fees imposed to recoup some of the revenue that evaporated as investors made fewer stock trades.
The about-face has been orchestrated by founder Charles Schwab, who returned as the company’s chief executive in July 2004 after the board ousted his right-hand man, David Pottruck.
Still, the new price is a far cry from two years ago when Schwab charged as much as $29.95 per online trade. The company also is reducing or dropping a bevy of other service fees.
“We are reasserting and protecting our value proposition,” Dodds said.
By cutting its fees, Schwab will temporarily relinquish some revenue in hopes of regaining it back — and then some — as the lower prices encourage customers to trade more stocks and keep more money in the company’s accounts.
The strategy has paid off so far. Schwab’s customers ended May with $1.27 billion in their accounts, up from $985 million before the price-cutting began two years ago. Meanwhile, the brokerage averaged 269,600 revenue generating-trades last month, a 59 percent increase from the previous year.
If the upcoming price cuts had been effect during this year’s first quarter, Schwab estimated its revenue for the period would have been trimmed by about $25 million, or 2 percent.
Schwab backtracked on its fees after realizing its higher prices had alienated many cost-conscious customers originally drawn to the brokerage as a moneysaving alternative to more traditional Wall Street firms.