Schwab Web Site Suffers Third Day of Technical Glitches

It's a good thing Charles Schwab (SCH) held onto those bricks.

The largest cyberbrokerage wasn't quite online Friday morning because of a systems software problem that kept customers from trading over computers and the automated phone service for almost two hours while the market was open. It was up and running on a backup system by 11:20 a.m. EDT.

Friday's outage marked the third day of online difficulties for the San Francisco-based company.

On Thursday, a related problem brought the Web site down after the market's close for a "brief time period," says Greg Gable, a Schwab spokesman. In addition, unrelated problems Thursday morning left customers accessing Schwab via America Online (AOL) or Microsoft's (MSFT) MSN unable to do so for 50 minutes.

And Wednesday morning, yet more unrelated problems caused a nearly three-hour outage that also kept investors off the site, Gable says. "That was a problem related to some automated files that had turned off the trading function and had failed to turn it back on at market open," he says.

The technical glitches hark back to earlier days when online brokerages had frequent outages. In February, E*Trade (EGRP) got the attention of regulators after it had three days of intermittent outages. That same week the New York Attorney General's office launched an inquiry into the sector based on customer complaints about numerous firms, including E*Trade. The attorney general's office didn't return a call.

These technical problems come at a time when Schwab is facing more competitors, including Merrill Lynch (MER), which launches a $29.95 per trade program Dec. 1, and Morgan Stanley Dean Witter (MWD), which launched its own $29.95 service Thursday. Schwab charges the same price.

Schwab had no figures on how many customers had been affected by the outage but pointed out that it also has retail branches -- more than 300 -- and scores of live customer representatives.

"Schwab is much better equipped to handle this kind of situation than anyone," says Greg Smith, an analyst at Hambrecht & Quist. "One of the things Schwab preaches is that it offers multiple access points." (H&Q hasn't done any underwriting for Schwab, but does have an equity product distribution agreement with it.)

But as Schwab's nearly 3 million online accounts show, the Web site is where customers want to trade. Friday's problem began Thursday after the market closed and was intermittent that night. Schwab took the system down at the market open to switch to the backup system, Schwab's Gable says. There was no touch-tone or Web trading until late morning when the backup system went into action. (While on backup, portfolios aren't updated and customers can't see their order status.) The company is working with its vendors on the problem, Gable says.

But some customers say that, well, that's not good enough.

David Lilienfeld, a 42-year-old epidemiologist in Columbia, Md., says that he expects the site performance to be perfect. Lilienfeld, who says he has been a Schwab customer for over a year, wonders what's the use of a site if it doesn't work.

"They were down for three hours on Wednesday. I tried and tried and tried and finally I gave up," Lilienfeld says. And, he says, he's giving some thought to moving to another online brokerage. His breaking point? "I think that if I tried two more times and had troubles, I'd switch," he writes in an email.

As for the bricks, Lilienfeld already has access to more than enough -- through his Merrill accounts.

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