Schwab investors escalated trading last month

NEW YORK Thu Feb 14, 2013 10:30am EST

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NEW YORK (Reuters) - Clients of Charles Schwab Corp. ramped up trading in January as the big retail brokerage firm on Thursday reported an 8 percent increase in average daily trades from a year earlier and 5 percent higher than in December.

The total included trades on which Schwab did not collect commissions. Average daily trades on which it did receive transaction-based revenue, a figure watched closely by analysts, were up 12 percent from December. At the end of last year nervous investors were shunning stock trading out of concerns about budget problems in the United States and ongoing issues in the Euro zone, according to brokerage firm executives industry wide.

In January, Schwab clients made daily average trades of 504,700, the highest average in at least the last 12 months, rising nearly 5 percent above December's average client trades of 480,200.

Schwab's online brokerage rivals earlier this week also reported big jumps in client trading. The discount brokers are often viewed as proxies for individual investor interest in the stock market.

"Overall, today's activity update was largely in line with our expectations and anti-climactic given similar peer reports," David Trone, an analyst at JMP Securities wrote in a note to clients. Trone rates Schwab shares "market perform."

Daily average revenue trades at TD Ameritrade Holding Corp in January rose 3 percent from a year ago and 17 percent from December. At E*Trade Financial Corp, daily average revenue trades in January were up 6 percent from January 2012 and 18 percent from December.

Trading volume on U.S. stock exchanges in January was up 8 percent from December but down 7 percent from January 2012.

Brokerage executives said that investors built up heavy cash positions in December by selling businesses, real estate and other holdings in anticipation of higher 2013 taxes and started investing the cash in January.

Net new assets at San Francisco-based Schwab in January from existing and new clients fell 49 percent from December to $12.1 billion but were up 70 percent from the amount collected in January 2012. The inflow last month was bolsted by $2.2 billion from a mutual fund clearing services client that Schwab did not identify.

$2 TRILLION RECORD

Schwab's total client assets reached a firm-record $2.01 trillion at the end of January, up 16 percent from a year earlier.

The firm, the largest by market capitalization among online brokers, ended January with 8,819 active brokerage accounts, up 3 percent from a year earlier. Late last year Schwab removed 30,000 brokerage accounts from those it considers active.

Schwab's January trading metrics offered further evidence that both individual investors and institutional money managers, who trade through Schwab, pulled cash out of money-market funds that pay virtually zero interest and redeployed them into mutual funds.

Schwab clients pulled $6.0 billion from money-market funds in January - reversing net inflows in the previous eight months. They added a net $3.4 billion to taxable bond funds, $2.7 billion to international funds, $1.2 billion to hybrid funds and $1.1 billion to large capitalization stock funds. January was only the second month in the last 12 that investors put more money into large-cap stock funds than they removed, according to Schwab.

Despite the jump in January trading, investors' interest in buying and selling stocks remains relatively low.

"All the signs are there that the retail investor is coming back into the market, but not robustly," TD Ameritrade Holdings Chief Executive Fred Tomczyk said at the company's annual meeting in Omaha, Nebraska on Wednesday.

At Schwab's business update meeting last week, Chief Executive Walt Bettinger said trading is "not anywhere near the levels that you might anticipate in history." Clients are investing, he added, but not trading.

Bettinger and other executives also have said that client trading is becoming a less vital metric for the online brokers because they are increasing their fee-based offerings that produce revenue based on client assets.

Schwab also has been growing its bank subsidiary, with its deposit accounts growing 1 percent in January to 874,000. Since bank stocks trade at lower valuation than brokerage stocks, some analysts have said that Schwab shares, which have produced a total return of 39.2 percent over the last 12 months, may be overvalued.

(Reporting By Jed Horowitz; Editing by Theodore d'Afflisio)

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