* Buying asset manager ThomasPartners
* Adjusted 3rd-qtr earnings in line with estimates
* Shares fractionally higher at midday
By John McCrank
Oct 15 Charles Schwab Corp said higher
asset management revenues helped boost third-quarter profit 12
percent, and the U.S. brokerage announced plans to buy smaller
asset manager ThomasPartners Inc.
Brokerages like Schwab have been under pressure due to soft
equity trading as uncertainty over Europe's debt problems, the
state of the U.S. economy, and the upcoming U.S. election keep
many retail investors on the sidelines. Years of ultra-low
interest rates have also been a drag on profits.
San Francisco-based Schwab on Monday said it earned $247
million, or 19 cents a share, in the third quarter, up from $220
million, or 18 cents a share, a year earlier.
The latest results included a nonrecurring tax benefit of
about $20 million. Excluding that benefit, earnings were about
17 cents a share, in line with analysts' average estimate,
according to Thomson Reuters I/B/E/S.
Revenue rose 1 percent to $1.2 billion.
Shares of Schwab were up 5 cents at $13.00 in midday trading
in New York.
PUSH TOWARD FEE-BASED ADVISORY PRODUCTS
Schwab said it had struck a deal to buy money manager
ThomasPartners, which focuses on dividend income, as it
anticipates growing demand for income-oriented investment
strategies. The deal includes an $85 million cash payment and
possible future payments based on growth in assets under
"We think this acquisition is further evidence of Schwab's
push to increase fee-based advisory products in an effort to
increasingly 'annuitize' its revenue stream in a low-rate
backdrop," said Keith Murray, an analyst at Nomura Equity
ThomasPartners managed $2.3 billion in assets as of Sept.
30, in largely growth-oriented investment portfolios designed to
generate dividend income streams. The firm already uses Schwab
as a custodian for its assets.
"That dividend growth strategy has caught our clients'
attention as some of them are looking for returns on portfolios
in an environment where yields are pretty low on fixed income,"
Joe Martinetto, Schwab's chief financial officer, said in an
"We think that by bringing it in-house and giving it a full
national kind of attention at Schwab that we are going to be
able to grow it pretty significantly in pretty short order."
Martinetto pointed to Schwab's Windhaven Investment
Management. When Schwab announced it was buying Windhaven in
August 2010, the firm had AUM of $3.9 billion. As of Sept. 30,
Windhaven's AUM had grown to $12.5 billion due to strong demand
for its managed portfolios.
ASSET MANAGEMENT REVENUE RISES
Years of low interest rates have led Schwab to waive more
than $1 billion in fees on money market funds due to the
near-zero rates being paid out.
Schwab said it waived $136 million in money market fund fees
in the third quarter, down from $160 million a year earlier and
$146 million in the second quarter.
Asset management and administration fee revenue was up 12
percent to $524 million, helped by the decline in fee waivers
and growth in other mutual fund balances and advice programs.
That helped offset a decline in trading and net interest
revenues. Trading revenue fell 18 percent from a year earlier to
$204 million and was down 7 percent from the second quarter. Net
interest revenue fell 1 percent from a year earlier to $439
Net new assets came in at $20.4 million, down 76 percent,
due in part to the unwinding of a business unit associated with
a former acquisition.
Schwab had $1.89 trillion in total assets as of Sept. 30.
Revenue trades -- which include all client trades that
generate either commission revenue or revenue from principal
mark-ups, such as fixed income -- tumbled 19 percent from a year
earlier at an average of 261,500 a day. Asset-based trades were
down 11 percent at 45,200 a day.
Schwab clients opened 198,000 new brokerage accounts during
the third quarter, down 61 percent year over year. The company
ended the quarter with 8.7 million active brokerage accounts, up
3 percent, and 844,000 banking accounts, up 10 percent.
Third-quarter expenses rose 2 percent to $835 million.