Shortly after announcing disappointing earnings for the quarter ended June 30, 2004, Charles Schwab and Company announced that David S. Pottruck, who has served as CEO since January 1998, has resigned. Former CEO Charles Schwab will retake the corporate reins and continue to serve as board chairman.
"During his two decades here at Schwab, David has been a valued partner to me and has worked tirelessly to help this Company pursue its vision," Mr. Schwab said. "As I see the opportunities ahead for Schwab, I want to underscore my confidence in the strength of our franchise, the value we provide our clients, the dedication of our employees, and the depth of our management team." The company said Schwab, 66, will remain its CEO indefinitely.
For the quarter ended June 30, 2004, Schwab posted earnings of $113 million, down from $126 million for the second quarter of 2003 and well off the $161 million posted for the first quarter of 2004. For the first half of 2004, thanks to the strong first-quarter showing, the Companys net income was $274 million, compared with $197 million earned during the same period in 2003.
Christopher Dodds, Schwabs chief financial officer, said that Schwab continues to work to reduce its annual expenses by $150 million to $200 million annually. Dodds told analysts during a conference call Tuesday that job cuts will continue during this phase of cutting costs; the company has eliminated more than 10,000 jobs since its revenue peaked nearly four years ago.
Daniel C. Goldberg, Managing Director of Bear, Stearns & Co. Incs Equity Research views Pottrucks resignation as a "strategic positive," and believes it could heighten speculation of a sale of the entire company. While acknowledging Mr. Pottrucks success at the firm, Bear, Stearns believes Schwab is currently pursuing too many strategies in its attempt to be all things to all people. "We would not be surprised to see a paring back of some underperforming businesses at Schwab," Goldberg states.
Several chunks of Schwab are currently being shopped around, primarily institutional research and trade execution services. One of the pieces to be sold is the trading and research shop SoundView Technology Group, which has only been part of Schwab for a few months. Schwab paid $321 million for SoundView last fall.
Another piece on the block is Schwab Capital Markets, which is a market maker in over 11,000 Nasdaq equities. The three components of Schwab Capital Markets for sale include the broker-dealer business, program trading, and trade execution business.
Also reported on the market is Schwabs Washington-based research office and quantitative research group Chicago Investment Analytics. Sources close to the sale say that Schwab expects to reap $250-400 million for the entire sale.
While Schwab reported margin balances unchanged from the first to the second quarter, some of their competitors were showing growth. BrownCo, JPMorgans online broker, has seen a 40% jump in margin balances between June 2003 and June 2004, which represents continued confidence in the markets, says Ken Klipper, CEO of BrownCo. Ameritrade, an online brokerage based in Omaha, Nebraska, reported a 25% increase in earnings between the second quarter of 2003 and 2004.