UPDATE 2-Schwab mutual fund, card costs hit 3rd qtr

Wed Sep 15, 2010 11:47am EDT

* Sees Q3 adjusted earnings comparable to $205 mln in Q2

* August net new assets $4.2 bln, total now $1.39 trillion

* Q3 profit to be hit by $150 mln pretax charges (Adds analyst comment, updates share price)

By Joseph A. Giannone

NEW YORK, Sept 15 (Reuters) - U.S. brokerage giant Charles Schwab Corp (SCHW.N) on Wednesday warned its third-quarter profit would be hurt by the costs of covering money-market fund losses suffered by customers in 2008 and a charge related to two struggling credit card programs.

Third-quarter earnings will include about $130 million in pretax charges for covering losses recognized by Schwab money market mutual funds that had invested in a structured investment vehicle that defaulted in 2008. Schwab also posted $20 million of charges from two credit card programs to be discontinued amid "challenging card industry economics."

Excluding the two charges, Schwab said third-quarter results will be "comparable" to the $205 million reported in the previous period.

Analysts said the charges were disappointing, but that the firm's asset-gathering and trading results showed resiliency. Credit Suisse analyst Howard Chen said Schwab's guidance of 17 cents a share of earnings was in line with his expectations.

"While market and macro factors -- most notably the adverse impact of near-zero short-term interest rates -- continue to obscure the earnings power of the franchise, we continue to like the asset-gathering story," Chen said in a client note.

Net new assets flowing into the San Francisco company last month totaled $4.2 billion, compared with $6.2 billion in July. Total client assets fell by 2 percent to $1.39 trillion during August, a period when the benchmark S&P 500 Index equity markets fell 4.7 percent.

Customer trading during August was down 5 percent from the prior month, and 16 percent lower than the year-earlier period, as a seasonal slowdown was exacerbated by customer worries about the economy.

"With interest rates and equity-market valuations remaining at or above their year-to-date lows, our operating performance continues to recover," Schwab Chief Financial Officer Joe Martinetto said in the latest monthly activity update.

He added Schwab expects to report higher third-quarter revenue, the firm's first year-over-year quarterly revenue increase since the second quarter of 2008.

The company's shares were down 3 cents at $13.82 in late-morning trading on the New York Stock Exchange. (Reporting by Joseph A. Giannone, editing by Dave Zimmerman)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.