Discount brokerage Charles Schwab today announced the immediate replacement of CEO David S. Pottruck by board Chairman Charles R. Schwab in the face of continued sagging profits.
In the same statement, the San Francisco, California, company also reported that its net income for the quarter ended June 30th was US$113 million, down about 10 percent, or $13 million, from the same quarter last year and down $48 million from the first quarter of 2004. For the first half of 2004, the company’s net income was $274 million, compared with $197 million earned during the same period in 2003, the company said in its statement.
Last month, Schwab warned of lower-than-expected quarterly profit, the latest of several profit warnings the company has issued in the past two years. The statement the company issued today gave no indication of whether there would be any change of direction under the new leadership.
In the statement, Schwab reported net income of $113 million, or 8 cents per diluted share, compared with $126 million, or 9 cents per share, in the same period a year ago.
Market Share Lost
In its statement, Schwab reported that second-quarter revenue increased to $1.11 billion from $1.02 billion. Daily average commission trades fell 20 percent from the first quarter, it noted.
The company has lost market share to other online trading companies that offer lower prices, and it failed to win new business from wealthier clients. In the face of that competition, Schwab in May cut its fees by a third to $19.95 for most customers.
Since it stock price peaked at $43.45 a share on March 27, 2000, Schwab’s stock has lost 80 percent of its value.
In the company statement, Pottruck, 57, was quoted as saying: “[T]he last few years have been difficult in the securities markets, and I accept the Board’s decision that it’s time for me to step aside. It’s been a great journey.”
“After taking some time off with my family, I’ll start thinking about the next step in my career,” Pottruck said in the statement.
Trading Activity Down
In reviewing the second quarter, Schwab, 67, who will also continue as board chairman, commented:
“Mixed securities market returns, continuing geopolitical uncertainties and concerns about rising interest rates all weighed on client engagement during much of the quarter. Client daily average revenue trades declined by 20 percent from the first quarter average, and outstanding margin loans ended the quarter at $9.1 billion, unchanged from month-end March. Excluding a $6 billion non-recurring outflow in June relating to our mutual fund clearing business, new and existing clients brought $12.7 billion in net new assets to the company during the second quarter, and we ended the quarter with $998 billion in client assets, an 18 percent increase over June 2003.”
But he pointed out that the sharp downturn in trading activity overall caused Schwab’s trading revenues to decline by 26 percent from the prior quarter, leading to a 7 percent sequential decline in total revenues.
“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,” 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,” he said.
Pottruck became sole CEO when Schwab stepped down from the co-CEO position in January 2003.