Schwab's Resurrection (SCHW)

In late 2004, the stock price of Charles Schwab (NASD:SCHW) was being beaten like a cur. The stock was below $10 and the company's board had to deal with a forced transition in management. So what did the board do? They brought Charles Schwab himself, the man, the legend, out of mothballs and put him in charge again.

The results have been positive well beyond what the board and investors could have foreseen. The most recent quarter is emblematic of the change in the company's fortunes. For the quarter ending March 31, 2006, net revenue rose 21% from the same quarter a year ago to $1.279 billion. Net income rose 68% to $243 million. And profit margins rose from 23.2% to 31.2%. The company also brought in $28.1 billion in new assets, 78% better than a year ago.

After modest revenue growth from 2003 to 2004, when revenue went from $4.328 billion to $4.479 billion and operating income dropped from $951 million to $922 million, 2005 was a big year. Revenue jumped to $5.151 billion and operating income to $1.872 billion. Schwab was moving again.

And the company has kept it up. In April, Schwab announced that total client assets under management hit $1.3 trillion, up 22% from April 2005.

Many observers attribute the improvement to the personal image that Charles Schwab projects to investors. The advertising campaign for the company has been built on his "straight talk" reputation, an image he has cultivated over many years on Wall Street. After all, how many major firms can still claim that the founder has his name on the door and is the company's CEO?

The return of Mr. Schwab and his successful new tenure at the helm has shown in the company share price. The stock has moved from a 52-week low of $10.80 to a high of $18.53. It now trades at $17.53. The stock has handily outperformed TD Ameritrade (NASD:AMTD). Ditto for Merrill Lynch (NYSE:MER). Of the immediate competition, only E*Trade (NYSE:ET) has risen more.

It has been less than two years (July 19, 2004) since the public assassination of the former CEO, David Pottruck, but Schwab has managed, in that time, to burnish the firm's image as the discount broker of choice, the honest man from San Francisco, who will take personal care of you and your money.

You have to hand it to Schwab. It worked.

SCHW 1-yr chart:

Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at [e-mail].

Comments

[SeekingAlpha Editors:]

Not sure about this one. All the online brokerages have performed extremely well in the last couple of years, and as you point out SCH has done better than AMTD but worse than ET. Charles Schwab's main move was to cut pricing, which stemmed the company's account losses. But other than that, it's not clear what he really did to re-ignite the business, other than ride a great market enviromment.

2006 May 15 06:30 AM

[SeekingAlpha Editors:]

Asif, you beat me to it: I was also going to add that AMTD paid out that one-time dividend. With that taken into account, SCH has probably underperformed both ET and AMTD.

2006 May 18 04:04 AM