SAN FRANCISCO (AP) – Charles Schwab reported Friday that its third-quarter net income slid 38 percent, with the retail brokerage logging a hefty charge from the 2008 default of a single structured investment linked to its money market mutual funds.
But its adjusted earnings topped Wall Street estimates and its revenue rose 5 percent, the first year-over-year revenue increase since the second quarter of 2008.
The company announced $94 million in after-tax charges, which also includes a charge related to ending sponsorship of Invest First and WorldPoints Visa credit card programs. It has previously said that it was getting out of the business due to challenging card industry economics.
For the quarter ended Sept. 30, Schwab said its net income dropped to $124 million, or 10 cents per share. That compares with $200 million, or 17 cents per share, a year earlier.
Excluding the one-time charges, Schwab said it would have earned $218 million.
Analysts surveyed by Thomson Reuters expected earnings of 9 cents per share. These estimates usually remove one-time items.
Revenue rose to $1.06 billion, matching Wall Street’s view, from $1.01 billion a year ago.
“Our diversified business model enabled us to grow revenues during the third quarter even as interest rates declined somewhat during the period, Chief Financial Officer Joe Martinetto said.
Asset management and administrative fees climbed from a year ago, the first such improvement in two years.
Net new assets were about $15 billion.
Net interest revenue increased 31 percent, while trading revenue dropped 24 percent. Martinetto cited “improved pricing and the environment’s effect on client activity.”
The company, based in San Francisco, said it ended September serving 7.9 million active brokerage accounts, 665,000 bank accounts, and 1.5 million retirement plan participants.
Total accounts climbed 4 percent to $5.6 million at September’s end.
Looking ahead, CEO Walt Bettinger said Schwab plans to invest in products and services that will expand business.
The company recently bought Boston-based Windward Investment Management Inc., a money manager that focuses on exchange-traded funds, for $150 million in stock and cash.
The acquisition expands Schwab’s presence in ETFs, baskets of stocks, bonds or commodities that can be traded like stocks during daily trading sessions.
ETFs have attracted investor assets far more rapidly in recent years than mutual funds, which are only priced once a day. ETFs are especially popular with institutional investors, but are also drawing more individual clients because of their typically low costs and tax advantages ETFs often have over mutual funds Bettinger said Schwab also is investing in a platform for active traders, expanding its fixed income capabilities and new issue access, and rolling out new integrated mobile applications for banking and brokerage services.
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