* 1st quarter EPS 15 cents, meets Street expectations
* Net new assets highest since 1st quarter 2008
* Shares down 0.72 percent
By John McCrank
April 16 Charles Schwab Corp, one of
the largest U.S. brokerages, reported a 20 percent drop in
quarterly profit on Monday, as expected, due in part to lower
asset management fees and higher expenses, but said its outlook
Years of low interest rates and market volatility have
weighed on the profitability of Schwab and other brokers. Those
pressures were amplified beginning last summer as a result of
the debt crisis in Europe and liquidity measures taken by the
U.S. Federal Reserve to backstop the U.S. economy.
The low rates cut into interest-derived revenues and have
led Schwab to waive over $1 billion in fees on money market
funds over the years to avoid negative returns to clients due to
the near-zero rates being paid out.
San Francisco-based Schwab said it waived $163 million in
money market fund fees in the quarter, compared with $112
million a year earlier.
The Fed has said it may leave interest rates at rock-bottom
levels through 2014 as the economic recovery remains uncertain.
But Joe Martinetto, Schwab's chief financial officer, said
the low point for short-term rates, based on the 10-year
Treasury yield, appears to have been the fourth quarter of last
year and that earnings should benefit going forward.
"We are looking for, all other things being equal and no
other changes in the economic environment, continued
improvements in the financials as we move through the remainder
of the year," he said in an interview.
SOFT EARNINGS MASK STRONG ASSET GROWTH
Schwab earned $195 million, or 15 cents a share, in the
quarter ended March 31, meeting Wall Street expectations. A year
earlier, the company earned $243 million, or 20 cents a share.
Asset management fees were down 4 percent at $484 million.
Expenses rose 8 percent to $876 million, with compensation and
benefits expenses up 6 percent at $465 million.
Revenue fell 1 percent from a year earlier to $1.19 billion.
On a quarter-over-quarter basis, revenue grew faster than
expenses, which was an encouraging sign, JMP analyst David Trone
said in a note to clients.
Schwab's core net new assets rose by $26.9 billion, the most
since the first quarter of 2008, and 13 percent above Trone's
Overall assets stood at a record $1.83 trillion.
Schwab clients opened 240,000 new brokerage accounts in the
quarter and made an average of 318,400 revenue trades per day in
the quarter. That was flat from a year earlier, before Schwab
bought options trading specialist optionsXpress.
Average revenue per trade was up 2 percent to $12.35.
Nomura analyst Keith Murray described the trading levels as
"sluggish," but said the results were mostly positive.
"A decent result given the challenging rate backdrop and
core growth metrics continue to head in the right direction,"
Schwab shares were down 0.72 percent at $13.77 on Monday