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Schwab Earnings on the Mark

Revenue jumps 11.3%.

Updated from 10:18 a.m. EST

Charles Schwab


, the nation's largest discount brokerage, reported status-quo fourth-quarter earnings Wednesday, meeting Wall Street expectations for sharply higher profits.

Schwab earned $187 million, or 14 cents a share, in the quarter, compared with $53 million, or 4 cents a share, last year. Revenue rose 11.3% from a year ago to $1.18 billion. Analysts surveyed by Thomson First Call were expecting earnings of 14 cents a share on revenue of $1.19 billion in the most recent quarter.

The discount brokerage, which drastically cut fees this year because of increased competition from some of its online competitors, said growth came mainly from new clients' business. The client services segment, which was given an additional boost by the fee cuts in 2005, received $75 billion in new assets during the quarter, a 49% increase over last year. Total assets under management reached $1.2 trillion, an 11% increase from 2004.

"We hope to continue our momentum

in new client growth, and are setting bars significantly higher in 2006," CFO Christopher Dodds said in an interview with


But the increase in earnings from additional clients was muted by what Schwab did to get them. The company attributed the increase new business mainly to its $30 million investment in its "Talk to Chuck" advertising campaign, which the company launched during the year. Schwab kicked of the "Talk to Chuck" campaign in September 2005, and had only two months of fairly intense advertising in 2005, according to Dodds. Since the launch of the campaign, however, the company has seen double-digit increases in new assets from new households under management.

The company also tacked on new clients because of the reduced fees.

"During the year, we completed a series of price reductions representing an investment in our clients of more than $375 million annually," said Chairman and CEO Charles Schwab in the release.

Despite a year of increased trading volume in the brokerage business, and growth in the Schwab's private client business, the company warned in mid-November that its fourth-quarter results would trail the third quarter. Investment in the advertising campaign and the reduction of fees ultimately balanced out Schwab's quarterly earnings.

The company's revenue from trading continues to decline, due to the decrease in fees and now accounts for less than 20% of the firm's total revenue, according to Dodds.

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The company's results Wednesday failed to impress Wall Street. Shares lost 3 cents to $14.95 in early trading. The downtick follows a 50% rally since last May. Schwab spent $688 million in 2005 to buy back stock.

Schwab it plans to continue its stock buyback program in 2006 with free cash, despite the flurry of M&A activity in the sector toward the end of last year.

"We like the businesses we are in and we like the momentum they have," Dodds said, "At this point in time, we don't have an interest in going out and making consumptive and potentially distracting acquisitions."

Consolidation action in the discount brokerage industry also drove competition for Schwab, most notably toward the end of the year.


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