Schwab Profit from Continuing Operations Up 36 Pct

By Lilla Zuill

NEW YORK (Reuters) - Discount stockbroker Charles Schwab Corp (SCHW.O) reported on Wednesday a 36 percent rise in in earnings from continuing operations as revenue increased despite heightened market volatility and economic uncertainty.

The San Francisco-based company, which in July sold its U.S. Trust private banking business to Bank of America Corp (BAC.N), said profit from continuing operations rose to $305 million, or 26 cents per share, from $224 million, or 18 cents a share, a year earlier.

The results matched analysts' average forecast, according to Reuters Estimates.

Chief Financial Officer Joe Martinetto said so far the market volatility and the threat of a U.S. recession had not taken a bite out of Schwab's business.

"We continue to see high client engagement levels," Martinetto said, adding he expects the firm, which has tweaked its business model to be more competitive in client fees and less reliant on trading income, to be better positioned to weather a market downturn than in years past.

Schwab may also grow its business in 2008 through acquisitions, Martinetto said. It is interested in buying up rival brokerage accounts or businesses that would bolster its 401(k) retirement planning business.

Its acquisition of The 401(k) Company in early 2007 added $23 billion in net new assets for the year.

Schwab shares closed Wednesday 1.6 percent higher at $22.81 on Nasdaq.

"Should the retail investor take a breather in 2008 after what proved to be a strong (second half of 2007), Schwab's fee-based organic growth model will be well positioned to drive continued growth," Bank of America analyst Michael Hecht wrote in an investor note.

Others were less optimistic. "Operating conditions deteriorated near quarter-end and will continue to do so into 2008," wrote Goldman Sachs analyst William Tanona, and cut estimates for Schwab earnings in 2008 to $1.05 per share from $1.18, and to $1.25 per share in 2009 from $1.35.

"Our reduced estimates reflect the headwinds we expect Schwab to face in 2008 amid a recession and a Fed funds rate of 2.5 percent by year-end 2008," Tanona added.

FEE REVENUE UP 21 PCT

Schwab's net income fell 34 percent to $308 million, or 26 cents a share, from $467 million, or 37 cents a share. The higher year-ago figure included a $205 million tax gain and income from U.S. Trust, the company said.

Net revenue rose 23 percent to $1.3 billion, in line with analysts' expectations, bolstered by strong growth across the brokerage's lines of business.

Revenue from asset management and administration fees rose 21 percent to $628 million, net interest revenue was 19 percent higher at $441 million, and trading revenue rose 34 percent to $242 million.