Updated for analyst comment, fresh share prices.
SAN FRANCISCO (
Charles Schwab Corp.
shares tumbled early Monday after the online broker warned of weakness in its fourth-quarter results because of a slowdown in client trading volumes in recent weeks and a sequential increase in management fee waivers on proprietary money market mutual funds.
The stock was down 2.7% to $17.93 in recent action. Midday volume of 8.5 million was more than two-thirds of the issue's trailing three-month daily average of 12 million. Based on Friday's close at $18.43, the stock was up 14.4% year-to-date, although it had pulled back more than 7% since hitting a 52-week high of $19.87 in early August.
Before the opening bell, Schwab said it now expects earnings for the fourth quarter to come in between 2 and 4 cents lower than its third-quarter profit of 17 cents a share. the current consensus estimate of analysts polled by
is for earnings of 17 cents a share in the December period on revenue of $1.04 billion.
The company said "continued declines in the rate environment have led to heightened revenue pressures during the fourth quarter" and forecast that management fee waivers on its proprietary money market mutual funds could increase by about $30 million from total waivers of $78 million in the third quarter. With interest rates near-zero, the company has been waiving the fees. The fee waivers Schwab also said that its normal seasonal increase in marketing investment would impact the bottom line in the fourth quarter.
The outlook was disclosed as part of Schwab's monthly activity report. The company also said client daily average revenue trades, or DARTs, came in at 297,100 for November, down 27% from the same period a year earlier and 11% from October levels. New and existing clients brought $6 billion in new assets to the company during the month, and Schwab said it ended November with total client assets of $1.397 trillion, up 27% from the same time last year and 4% from the end of October.
have been in the market for weeks.
FBR Capital Markets reiterated its market perform rating and $16 price target on Schwab following the news, saying it expects the company to provide an outlook in January that will be "well below" Wall Street's current mean estimate for earnings of 87 cents a share in fiscal 2010. The firm believes the same factors driving the lower fourth-quarter view will be in play, namely slow trading activity and increased fee waivers along with a continued mix shift in client holdings toward lower-yielding assets.
"Without the prospects of higher interest rates, we believe SCHW has little upside potential and is likely to trade down to our $16 price target," the firm told clients.
FBR sees a long road back for Schwab's bottom line, estimating that while earnings are likely to reach a trough in the first quarter of 2010, the company won't see earnings return to "normalized" levels until 2012. The firm's estimates are for profits of 72 cents a share in fiscal 2010, and 97 cents a share in fiscal 2011.
Shares of the rest of online brokers were still mostly down in Monday's session.
was off a penny to $1.65;
was losing less than 1% to $18.40;
slipped a nickel to $14.44; and
gave back 6 cents to $7.05.
Written by Michael Baron in New York.