Schwab says expense cuts to continue this year
Charles Schwab & Co. Inc., which late last year said it would eliminate more than 100 jobs at all levels amid the economic slowdown, said Friday that it will continue to reduce expenses.
Charles Schwab & Co. Inc., which late last year said it would eliminate more than 100 jobs at all levels amid the economic slowdown, said Friday that it will continue to reduce expenses.
“We are proceeding with our previously announced effort to reduce expenses significantly, with the current expectation of identifying and implementing cuts totaling 7% to 8% of our 2008 total spending,” chief financial officer Joe Martinetto said in a prepared statement as the San Francisco-based company announced its fourth-quarter results.
Schwab’s 2008 expenses, excluding interest, totaled $3.1 billion, signaling that the company expects to shave almost $250 million of expenses this year.
The company’s fourth-quarter results included $25 million in pretax severance charges.
Among the notable executives who have already left Schwab are Charles Goldman, former head of its institutional unit for registered investment advisers, who has since taken a senior position at Fidelity Investments of Boston, and Paul Peterzell, a 15-year veteran who ran strategic research for brokerage and previously was director of planning and analysis in Schwab Institutional in San Francisco.
Schwab’s quarterly net income from continuing operations inched up 1% from the year-earlier quarter to $308 million, a gain that company executives said indicates the firm’s strength amid a faltering economy and 40% declines in broad equity indexes that have caused losses at many financial companies.
Charlotte-based Bank of America on Friday said it lost $1.79 billion in the fourth quarter and $4.0 billion for all of 2008. Citigroup reported a fourth-quarter net loss of $8.3 billion and a towering deficit of $18.7 billion for all of 2008.
Schwab’s total revenue for 2008 rose 3% to $5.15 billion, but the company’s “sustained expense discipline” enabled it to turn the small revenue rise into a 10% income jump from continuing operations and a record pretax profit margin of 39.4%.
Mr. Martinetto said continuing expense cutting is necessary.
“With equity valuations and short-term interest rates starting 2009 dramatically lower than a year ago and no positive catalyst currently in sight, we believe we must proceed as if the economic environment will not improve for some time,” he said.
The CFO also warned that Schwab could suffer losses from continuing declines in mortgage-backed securities in its investment portfolio.
Schwab, which in November combined its corporate and retirement services businesses with its RIA unit in a move that coincided with Mr. Goldman’s departure, reported that 120 new RIA teams with $13 billion in assets joined its custody platform last year, up from $9 billion with 114 teams in 2007.
Total client assets and net new assets in all three of Schwab’s main business lines — discount brokerage, adviser services and corporate/retirement services — plunged last year. Combined client assets of the businesses fell 21% from 2007, and net new client assets fell 41%.
The adviser services business fared best, with client assets in the fourth quarter falling 18% from the previous year, compared with dips of 23% and 25% in the investor services (retail brokerage) and corporate/retirement services areas, respectively.
Net assets from RIAs fell 35% in the fourth quarter, compared with dips of 74% in the corporate/retirement area and 43% in the investor services unit.
Schwab’s chief executive, Walt Bettinger, whose background is in corporate-retirement-plan services, said in November that the company would eliminate 100 positions and continue to reduce head count “if the environment gets meaningfully worse.”
The company cut more than 20% of its work force after the dot-com boom that stimulated online trading ended in 2001, and did not begin expanding again until 2004.
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