The Charles Schwab Corporation (



Interim Business Update Conference Call

October 26, 2011 11:00 AM ET


Rich Fowler – Head, IR

Walter Bettinger – President and CEO; and CEO, Charles Schwab Bank

Joseph Martinetto – EVP and CFO


Richard Repetto – Sandler O’Neill & Partners

Howard Chen – Credit Suisse

Kenneth Worthington – JPMorgan

William Katz – Citi

Brian Bedell – ISI Group

Michael Carrier – Deutsche Bank Securities


Rich Fowler

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Good morning everyone. Welcome to the Fall 2011 Schwab Business Update. This is Rich Fowler; Head of Investor Relations for Schwab and with me here today are Walt Bettinger; our Chief Executive Officer; Joe Martinetto, our Chief Financial Officer. It’s a great fall day out here in San Francisco which we can actually see this time because when our new state of the art some might even call it spicy (ph) webcast center which has the main virtue of being a converted conference room with an outside window as opposed to or even more impressive yet sadly windowless studio where we’ve done this previously. And for those of you who’re keeping track I can look out that window and see that it is indeed another top-down day.

We are doing an interim update today. So, we’ll spend just an own with Walt and Joe, sharing their perspective on life at Schwab right now. We’ll start out with some prepared comments and then, we’ll go to Q&A until it’s time to wrap up. Before Walt starts this off, let’s spend the moment on the ever popular forward-looking statement page, the main point of which is to remind everyone that outcomes can defer from expectations. So, please keep an eye on evolving disclosures and then, let’s cover how we’ll take questions.

Once again, we’ll do so via both the web console and the dial-in as well. So, for anyone who doesn’t already have it, the dial-in – excuse me, it’s 800-871-6752, the conference ID is 981 77163. So, that’s also should be available to you if you are registered through The number shown there, it’s also in the email confirmation that you got when you registered.

When we start the Q&A session, we’ll ask the operator to remind this how the process works. So, I think let’s see we’ve got administrative stuff out of the way. We have our speakers ready to go. I’ve got my blood pressure meds on board. So, let me turn it over to Walt to start this off.

Walter Bettinger

Thank you Joe. Good morning everyone. Thanks for joining us today. It was about a year ago I think we had this meeting and just a few blocks away the wanted black and orange of the San Francisco Giants were enjoying the World Series, although it’s a long suffering Baltimore Orioles fan I refer a different form of black and orange. But again, thanks for joining us.

Today, what we want to try to do is cover several important aspects of our company but we’re going to do so in a bit more detail than we probably typically go into during one of our semi-annual webcast presentations and more specifically Joe and I want to discuss our longer term bigger strategic and financial picture, our financial results and growth as interest rates stayed relatively flat from early 2010 into August of 2011.

We want to discuss the impact on our second half 2011 financial results of course as affected by the weakening economic environment. A bit about our plans to respond to this weakened environment as we close 2011 and move into 2012. And then, just an overall view of the opportunities that are before us and how we plan to executive on our strategies as we move forward.

Our strategy of course remains the same. It revolves around our five operating priorities. Diversified client acquisition where we look to leverage our strength and household acquisition via client referrals, advertising and independent advisors but also with the additional efforts that are intended to diversify the way that we acquire new household initiatives like our independent branch strategy as well as our index oriented 401(k) program.

Second operating priority win-win monetization and these are efforts that are grounded in the best interest of our clients that simultaneously increase the revenue that Schwab earns per dollar of client assets. Long-term retention, this is our fundamental focus on client service. The user friendly technology, great value, consistency of approach and personal relationships all designed to help ensure that clients once acquired remain long-term profitable clients of our firm.

Expense discipline, a trade at the core of our management team. Discipline and the ability and willingness to make trade authorization I think they’ve not only kept our firm focused but it’s enabled us to make some significant investments of late in strategic areas. Of course all while continuing to operate the firm at an extraordinarily low expense rate, approximately 20 basis points when you mention that against client assets.

And then fifth, certainly not least important, effective capital management and this revolves around our clear understanding that shareholders and trust, our management with our capital and the responsibilities of the company that trust that we effectively deploy their capital on ways that will yield long-term profitable growth and return, excess capital back to shareholders and ways that are considered most friendly to them.

Let’s talk a little bit about our approach and how it applies to our various constituencies. We think that the approach continues to demonstrate great results with our clients and that’s illustrated by our ongoing client growth and of course our successful win-win monetization. Our core client net assets continue to lead the investing industry and of course we continue to add large volumes of new households and accounts.

In terms of monetization, on a monthly basis somewhere between 3,000 and 5,000 of our retail investing clients choose to transition from being self-directed to one where Schwab provides ongoing portfolio advisory services and of course in return for that we get an asset base fee. And I think just as importantly because it is a win-win monetization concept the clients who choose to retain thus for these types of services typically end up with a far more diversified portfolio one that more exclusively takes into account the risk profile and tolerances. And over the long-term that’s going to lead to not only better outcomes for our clients but to a more stable and consistent client base.

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