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Charles Schwab Corp : Schwab's 4th-Quarter Net Jumps 29% on Asset Fee Growth

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01/16/2013 | 11:54am EST

--Schwab fourth quarter profit climbs, helped by surge in net new assets

--Company posts best quarter of net new asset acquisition since March 2008, helped by companies' accelerated dividend payouts

--Money market fund waivers decline by 15% from a year ago, but up slightly from third quarter and in 2012

(Adds information on asset management business, net new assets, trading activity and comments from CFO and analyst throughout.)

   By Brett Philbin 

Charles Schwab Corp.'s (SCHW) fourth-quarter profit climbed 29% from a year ago as an increase in net new assets and lower money market fund fee waivers boosted the discount brokerage's asset management and administration fees, offsetting yet another period of weak trading activity.

Schwab earned $211 million, or 15 cents a share, up from $163 million, or 13 cents a share, a year ago. Revenue rose 9.2% to $1.22 billion. Analysts polled by Thomson Reuters had expected a per-share profit of 15 cents on $1.21 billion in revenue.

The company's net interest margin, essentially the profit margin from investing and lending, again fell, reflecting the tough interest rate environment for Schwab and its peers. Shares of Charles Schwab were down 1.4% to $15.08 in late Wednesday morning trading.

Schwab, the largest discount brokerage by market capitalization at $19.2 billion, added $47.8 billion in core net new assets during the period, more than doubling the $21.5 billion the company gathered a year ago.

Total client assets rose 16% from a year ago to about $2 trillion.

In December alone, Schwab brought in $22.6 billion in net new money, excluding gains from its acquisition of ThomasPartners Inc., a dividend income-focused asset manager. The figure was 28% higher than its previous quarterly record set in March 2008.

Within its asset gathering business, Schwab was helped by the decision by many companies to announce special dividends or accelerated dividend payouts to avoid potentially higher tax rates in 2013, as heated "fiscal cliff" negotiations persisted in Washington.

"Client dividend payments were up a fair amount in the fourth quarter from where they normally would be," said Charles Schwab Chief Financial Officer Joe Martinetto in an interview.

Many Schwab customers who received such payouts elected to enlist the company to manage that cash for them as Schwab earns fees for managing assets for clients. In the fourth quarter, the company's asset management and administration fees rose to $539 million, up 18% from $458 million, a year earlier.

Such results underscore the San Francisco company's push to diversify its revenue beyond the volatile trading business into more advisory offerings.

Asset fees now account for 44% of the company's revenue, compared with just 17% for its trading operations.

"I think that's the core of the story," Mr. Martinetto said, adding that he believes Schwab is "finally getting to a point where growth in the franchise is outstripping environmental factors."

Schwab was also a beneficiary of declining money market fund fee waivers, which fell to $142 million in the fourth quarter, down 15% from $168 million a year earlier. However, the figure was up 4.4% over the prior period and climbed 3.3% in 2012.

With continued low interest rates Schwab has been waiving such fees so that client yields don't turn negative. The fee waivers cut into Schwab's asset fees. In another sign of the continuing effect of low rates, Schwab's net interest margin declined to 1.49%, down eight basis points from a year ago and 12 basis points from the third quarter.

In a note to clients, Nomura analyst Keith Murray wrote that Schwab continues to show "solid core metrics," but added that revenue growth remained "sluggish" and net interest margin pressure continued to "weigh on results."

Mr. Murray said despite a better start in 2013, Schwab's shares could pull back on the results, following a nearly 20% run-up in the stock since November.

On the trading front, Schwab reported 265,700 in daily average revenue trades, or DARTs, down 14% from a year ago, though up 2% from the third quarter. DARTs for Schwab include all trades that generate either commission revenue or revenue from principal markups, such as fixed income.

Like its peers, Schwab has been grappling with an industry-wide decline in trading volume as the European debt crisis, concerns about the global economy, and the typical year-end slowdown due the holidays affected such activity in the fourth quarter.

Overall, trading revenue at the company fell 13% to $202 million in the quarter.

"We were hopeful that as we got through the U.S. Presidential election, we would see a bigger lift from trading, but as the fiscal cliff [debate] went on, we saw more muted reactions from clients," Mr. Martinetto said. He declined to issue a forecast for trading activity in 2013.

--Saabira Chaudhuri contributed to this article.

Write to Brett Philbin at brett.philbin@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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Financials (USD)
Sales 2020 10 717 M
EBIT 2020 4 547 M
Net income 2020 3 335 M
Finance 2020 32 704 M
Yield 2020 1,71%
P/E ratio 2020 16,9x
P/E ratio 2021 15,7x
EV / Sales2020 2,20x
EV / Sales2021 2,44x
Capitalization 56 265 M
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Technical analysis trends THE CHARLES SCHWAB CORPORA
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Mean consensus OUTPERFORM
Number of Analysts 19
Average target price 54,22  $
Last Close Price 43,80  $
Spread / Highest target 46,1%
Spread / Average Target 23,8%
Spread / Lowest Target 11,9%
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Walter William Bettinger President, Chief Executive Officer & Director
Charles Robert Schwab Chairman
Joseph Raymond Martinetto Chief Operating Officer & Senior Executive VP
Peter B. Crawford Chief Financial Officer & Executive Vice President
Tim Heier Chief Technology Officer & Executive VP
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