By By Jonathan Spicer
The biggest U.S. online brokerage said it faces "significant revenue challenges as we enter 2009." Its shares were down 1 percent in morning trading.
The 2008 fourth quarter included the steepest phase of last year's broad stocks selloff, lifting Schwab's trading revenue. But revenue from interest on assets fell 15.6 percent, depressed by the drop in interest rates.
"Having the (overall) market down 40 percent over the last year and interest rates at unprecedentedly low levels, neither one of those factors are helpful for us," Joe Martinetto, chief financial officer, told Reuters.
"We believe we must proceed as if the economic environment will not improve for some time," he added in a statement.
Schwab has repeatedly acknowledged that a lengthy bear market could cause individual investors, called retailers, to leave the market in force, hurting discount brokers.
But in the fourth quarter, trading revenue rose 40 percent from the third quarter and by 45 percent from a year earlier.
"They finished off the year at some strong levels," said Roger Freeman, analyst at Barclays Capital. "Where we think there are challenges ahead is around the very low interest rate environment."
Schwab earned $308 million, or 27 cents a share, in the quarter, up from $305 million, or 26 cents per share, a year earlier. Revenue fell 5 percent at $1.28 billion, in line with estimates.
On average, analysts polled by Reuters Estimates had expected the San Francisco-based company to earn 26 cents per share.
The results included $25 million in pre-tax severance charges following a decision last month to cut 100 jobs amid wider cost-cutting measures.
Martinetto told Reuters further cuts would focus on "back office functions" to avoid affecting staff who directly serve clients. He said more details would come this month.
Schwab's net new assets dipped 11 percent from the third quarter, while total client assets at year-end totaled $1.14 trillion, down 21 percent from a year earlier.
David Trone, analyst at Fox-Pitt Kelton, said the $9.2 billion in net new assets in December was "a big positive surprise and shows that the Schwab asset-gathering machine was not slowed even by terrible September-October equity markets."
Schwab, which provides online brokerage services, banking and financial advice, relies more than its rivals on asset management.
Daily average revenue trades -- trades that generate revenue through fees or commissions -- rose 27 percent from the third quarter to about 358,300. However, December DARTS were down 12 percent from November, suggesting 2009 could see individual investors play a less active role in markets.
TD Ameritrade
While TD Ameritrade shares climbed 1.8 percent on Friday, Schwab shares were down 15 cents at $14.74 on the Nasdaq. Schwab shares fell 35.6 percent in 2008, their worst year since 2001.
(Reporting by Jonathan Spicer; editing by Jeffrey Benkoe and John Wallace)
