UPDATE 3-Schwab profit rises 16 percent, helped by gain
* Shares up more than 2 percent
* Q2 EPS 20 cents vs Wall St view of 18 cents
* Earnings include gain from resolving vendor dispute
By John McCrank
NEW YORK, July 17 (Reuters) - Charles Schwab Corp, one of the largest U.S. brokerages, said on Tuesday its second-quarter profit rose 16 percent, helped by a one-time gain, an increase in fee-based advisory accounts and stronger net interest income.
Schwab earned $275 million, or 20 cents a share, in the period ended June 30. A year earlier, it earned $238 million, or 20 cents a diluted share.
Analysts, on average, expected the San Francisco-based company to report 18 cents a share, according to Thomson Reuters I/B/E/S.
Excluding a $70 million gain that Schwab said was from the resolution of a vendor dispute, the company's earnings came to 17 cents a share, said David Trone, an analyst at JMP Securities.
Revenues rose 8 percent from a year earlier to $1.28 billion, versus expectations of $1.23 billion.
Schwab shares, which declined 10 percent during the last quarter, were up 2.1 percent at $12.95 on Tuesday afternoon.
While Schwab is traditionally thought of as catering to do-it-yourself investors, it ended the quarter with 2.5 million accounts either enrolled in one of the firm's advisory offerings or under the guidance of an independent adviser.
"We have invested for more than a decade now in our advice and relationship capabilities and we continue to make inroads there," Joe Martinetto, Schwab's chief financial office, said in an interview.
Trading revenue rose 7 percent from a year earlier to $219 million, but was down 10 percent from the prior quarter.
The quarter-over-quarter drop-off reflected concern among investors over a number of issues, from the uncertainties in Europe, to the pending "fiscal cliff," to the presidential election, Martinetto said.
"There are valid reasons that clients have moved to the sidelines with some of their trading activity and it's probably even healthy for them to wait and see how some of these things develop," he said.
Higher cash balances at Schwab helped fuel a 2 percent rise in net interest revenue, to $458 million.
Richard Repetto, an analyst at Sandler O'Neill, said Schwab topped his estimates for the quarter due to the net interest revenue, which was $23.4 million higher than he expected.
Revenue trades -- which include all client trades that generate either commission revenue or revenue from principal mark-ups, such as fixed income -- were up 8 percent from a year earlier at an average of 285,200 a day. Asset-based trades were up 16 percent at 50,600 a day.
Schwab clients opened 221,000 new brokerage accounts during the second quarter, up 8 percent year over year. The company ended the quarter with 8.7 million active brokerage accounts, up 7 percent, and 822,000 banking accounts, up 10 percent.
Asset management fees were down 1 percent at $496 million.
Expenses rose 6 percent to $851 million, with compensation and benefits expenses up 4 percent at $446 million.
Years of low interest rates have led Schwab to waive over $1 billion in fees on money market funds to avoid negative returns to clients due to the near-zero rates being paid out. Schwab said it waived $146 million in money market fund fees in the quarter, compared to $128 million a year earlier, and $163 million in the prior quarter.
- Target stores' customers hit by major credit card attack
- UPDATE 3-Saab wins Brazil jet deal after NSA spying sours Boeing bid
- Facebook, Zuckerberg, banks must face IPO lawsuit: judge
- U.S. prosecutor defends treatment of Indian diplomat |
- Fed cuts bond buying in first step away from historic stimulus |