Charles Schwab's profit drops on one-time charge

NEW YORK (Reuters) - Charles Schwab Corp's (SCHW.N) quarterly profit fell 27 percent, in line with expectations, as a one-time charge related to a regulatory settlement muted better trading and asset gathering.

The brokerage and fund manager logged an expected charge related to a $119-million settlement, announced last week, of regulatory charges that it hid from investors the risks in its YieldPlus SWYSX.O mortgage-bond mutual fund.

Schwab earned $119 million, or 10 cents a share, in the fourth quarter, down from $164 million, or 14 cents a share, a year earlier.

Excluding the one-time charge, Schwab's profit was up 33 percent from last year, reflecting a rebound in client trading volumes and a more positive outlook for the U.S. economic rebound.

Revenue rose 14 percent to $1.13 billion. Analysts on average expected San Francisco-based Schwab to earn $1.12 billion in revenue, according to Thomson Reuters I/B/E/S.

Schwab's client trading activity edged up 2 percent from last year, and jumped 16 percent from the previous quarter, as individual or "retail" traders returned to a rising overall stock market.

Net new assets were up 6 percent at $26.2 billion, possibly a sign that Schwab is turning a corner after a difficult 2010.

Schwab shares were down 10 cents at $18.73. They are typically sensitive to U.S. interest rate policy, and have climbed 35 percent since the beginning of the fourth quarter, as the country's economy outlook improved.

Near-zero interest rates have hampered Schwab's ability to earn fees from money market funds for more than two years. Analysts say such discount brokerages could sharply benefit if rates rise earlier than expected.

(Reporting by Jonathan Spicer, editing by Gerald E. McCormick and Derek Caney)