Charles Schwab Corporation’s (SCHW) fourth quarter fiscal 2009 earnings of 14 cents per share were a penny short of the Zacks Consensus Estimate. However, this compares unfavorably with earnings of 27 cents in the year-ago quarter. The earnings for the quarter were also consistent with Schwab’s estimate in mid-December.
The year-over-year decrease in earnings was due primarily to a 23.2% decline in net revenue to $986 million. Net revenue decreased primarily as a result of lower net interest revenue (down 18.0%) and asset management & administration fees (down 17.4%).
Falling interest rates significantly impacted the revenue during the quarter. Schwab has been forced to waive fees on money market funds due to the historically low rates. Money market fund fee waivers increased to $110 million in the reported quarter from $78 million in the prior quarter. However, this has been partially offset by cost containment measures.
For full year 2009, Schwab’s net income was $787 million or 68 cents per share, compared to $1.2 billion or $1.05 in the year-earlier period.
Though client trading activity remained healthy in 2009, there was a 7.8% drop in trading revenue to $996 million for the full year.
Net income for the quarter decreased 18.0% sequentially and 46.8% year-over-year to $164 million.
Total non-interest expense increased 4.2% sequentially but decreased 7.3% year-over-year to $720 million. The year-over-year decrease in non-interest expense was a result of expense reduction initiatives. The expense reduction initiatives have enabled Schwab to achieve a pre-tax profit margin of 27.0% for the reported quarter.
As of Dec 30, 2009, Schwab had total client assets of $1.4 trillion (down approximately 25.1% year-over-year). New client assets decreased 14.3% to $24.8 billion compared to $21.7 billion the prior-year period.
Net Investor Services accounts for the reported quarter decreased 30.0% year-over-year to approximately 36,000. As of Dec 30, total accounts were up 3% year-over-year, reaching 5.4 million.
Annualized return on equity for the quarter came in at 13%, down from 17% in the prior quarter and 30% in the prior-year quarter.
We suspect that the results of Schwab will continue to be impacted by the challenging market conditions, while the stronger client trading activity resulting from increased market volatility and management’s aggressive efforts to control cost will provide some support in the upcoming quarters. On Tuesday, the share price of Schwab was up by about 1.5%, closing at $19.29 on the New York Stock Exchange.
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