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Schwab sees record 4Q
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December 29, 1999: 4:35 p.m. ET
Says busiest month ever in December will allow it to beat forecasts
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NEW YORK (CNNfn) - Charles Schwab Corp. projected Wednesday that its fourth-quarter profit will exceed Wall Street expectations, jumping as much as 61 percent due to a strong November and a December that could be the busiest month in its history.
The nation’s biggest discount and online broker said it expects net income of $162 million to $171 million, or 19 to 20 cents a diluted share, in the quarter. Analysts surveyed by First Call had been looking for 17 cents a share.
A year earlier, Schwab (SCH) earned $106 million, or 12 cents a share. Revenue is expected to rise to $1.1 billion in the quarter from $789 million a year earlier.
The San Francisco company overcame a series of problems with its online trading system in October that disrupted customer trading for three straight days.
This would be the third quarter this year that Schwab exceeded analysts’ estimates -- a performance driven by growth in online trading and the strong interest of individual investors in the bull market.
But the company's stock has not performed as well as earnings, despite the bump it received with Wednesday's announcement. It has lost a bit less than half the value from a split-adjusted 52-week high of 77-1/2 in April, due to concern about rising competition from traditional brokers getting into discount, online trading.
An analyst with a "buy” recommendation on the stock said Wednesday's announcement shows Schwab is well positioned to deal with this increased competition.
"From my point of view, these strong fundamentals prove the bears are wrong," said Amy Butte, analyst with Bear Stearns, who had been expecting earnings of 17 cents a share in the quarter.
Chris Dobbs, the company's chief financial officer, said that the company is not overly concerned about the new players in discount or online trading.
"What we try to convey to folks is we've faced significant competition for many, many, many years," he said in an interview on CNNfn.
Butte and Dobbs both said the company has made significant investment in technology during the last two quarters to make sure the October trading problems are not repeated.
"Even as we've gone through two very busy months, in November and December this year, our systems have been functioning extremely well," said Dobbs. "So we're approaching the new year and the first quarter with great confidence as far as our system capacity goes."
The company's 337 branch offices will be open this weekend as an assurance to customers who want to come in and check their accounts for any possible Y2K problems.
While individual investors may be more prone than institutions to sell shares this week because of Y2K concern, such a trading spike would increase commission revenue even if it lowers customer assets, said Butte.
Dobbs said that Schwab's variable cost structure leaves it well positioned even if there is a bear market in 2000. (7.8M quicktime movie)
Schwab also reported that customer assets reached $700 billion at the end of last week, less than two months after surpassing the $600 billion mark, and customers have opened an average of about 6,400 new accounts per day during the month.
For the year Schwab, expects to report earnings of $580 million to $589 million, or 69 to 70 cents per diluted share, on revenue of $3.9 billion. Net income for 1998 was $348 million, or 42 cents per share, on revenue of $2.7 billion.
Schwab shares closed on Wednesday up 5-1/2, or 16 percent, to 39-13/16. 
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Charles Schwab Corp.
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