NEW YORK/SAN FRANCISCO Charles Schwab Corp (SCHW.N), the biggest U.S. online brokerage, said on Friday that clients withdrew a net $500 million in April, the first down month since last June, and its stock fell nearly 2 percent on fears the company would not meet its asset-growth goals.
Schwab said customers withdrew the money to pay taxes, and that customer trading activity slowed from a year earlier. A spokesman said April is typically the slowest month for inflows because of tax payments, but the company said the net outflow was its first for the month since 2001.
This April may have been worse than others because taxes were due later in the month, on the 18th -- not the customary April 15 cutoff, spokesman Greg Gable said. Tax payments "had a more dominant effect," he said.
Inflows have returned to "seasonal norms" in May, Gable said, and April's trading activity was little changed from March after several months of rising activity.
Trading activity at Schwab and other online brokers is watched closely since it helps measure the confidence that individual investors have in the stock market. Customer trading had been on the rebound over the past several months.
"Retail customers appear to remain engaged and net new brokerage accounts were the second highest in the past 12 months," analyst Matt Fischer at CLSA Credit Agricole Securities wrote in a note to clients.
Rising markets helped generate $35 billion in market gains for Schwab customers in April. That helped push client assets at the firm up to $1.68 trillion as of April 30, an 11 percent increase from the prior year.
But the outflows brought to $73.8 billion the total net inflows for the first four months of 2011, equal to annualized growth of 4.7 percent -- below the company's 2011 target of 8 to 10 percent growth, Sandler O'Neill analyst Richard Repetto wrote in a note to clients.
"The results were mixed, with negative core net new assets but better-than-expected client trading activity," Fischer, of CLSA Credit Agricole Securities, wrote.
Schwab's daily average client trades for the month fell by 1 percent from a year ago to 435,000. March volumes, by comparison, had jumped 16 percent from the previous year.
The San Francisco company also opened 83,000 new accounts in April, down 7 percent from a year earlier but a 1 percent increase from March.
Schwab said the asset outflow reflected cash payments for U.S. income taxes. "Tax season took a bite out of flows, turning negative for the first time in a decade, though management noted that things likely returned to normal in May," Fischer said.
Schwab, one of the largest sellers of mutual funds, also noted investors yanked a net $3.3 billion from money market funds, while pouring money into taxable bond and "hybrid" stock and bond funds.
Investors last month also pulled $521 million from large company stock funds and $195 million from municipal and other tax-free bond funds.
Schwab's stock fell 32 cents, or 1.8 percent, to $17.66 on the New York Stock Exchange, the second-worst performer on the 11-member NYSE Arca Securities Broker/Dealer Index. Shares of Schwab had risen 5.1 percent this year before Friday's client activity report.
(This story was corrected to show net outflow of $500 million in first sentence)
(Reporting by Joseph A. Giannone and Philipp Gollner; Editing by Matthew Lewis, Gunna Dickson, Gary Hill)