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Schwab to Cut 3,400 Jobs Because of Reduced Trading

Investing: Plunging stocks brought fewer transactions. Online broker expects quarterly profit to be a third of a year ago.

March 23, 2001|From Bloomberg News

Charles Schwab Corp., which doubled its work force the last three years, will eliminate as many as 3,400 jobs because plunging stocks have prompted customers at the largest U.S. online broker to reduce trading.

San Francisco-based Schwab also scaled back forecast earnings for the second time in a week. It will take a charge of $70 million to $100 million in its second quarter to account for the job cuts, an amount equal to estimated first-quarter earnings. Schwab's board authorized the repurchase of 20 million shares--worth about $300 million--to shore up its sagging stock.

The job cuts, accounting for 11% to 13% of full-time employees, followed efforts to hold down costs by freezing salaries and telling staff to take unpaid days off.

"This is a difficult time," said Chairman and Chief Executive Charles Schwab in a conference call. "We've come through a highly speculative technology bubble. Maybe I should have been more emphatic about understanding that this was a temporary phenomenon. We're cutting to meet our current customer demands."

Online brokerages such as Schwab, which expects first-quarter profit to be about a third of what it was in the same period a year ago, have suffered as stocks declined and individual investors shunned do-it-yourself trading.

After falling 61% in the last year, Schwab's market value has dropped to $21 billion, less than half of Merrill Lynch & Co.'s, the biggest U.S. brokerage by client assets. Schwab's and Merrill's market values were even at the beginning of 2000. Schwab shares fell 70 cents to close at $15.20 on the New York Stock Exchange, after earlier dropping as low as $14.50.

Schwab will fire 2,000 to 2,300 employees during the second quarter. An additional 600 to 900 will leave through attrition during the remainder of the year, the company said. The firm also will stop work with 150 to 200 contractors.

If the market decline extends into next year, Schwab may have to eliminate more jobs, said Chief Financial Officer Christopher Dodds.

"There's not a lot of cushion" to build back up to the firm's target pretax profit margin of 12% to 13%, said Dodds during the conference call. He said these cuts will keep its profit margin at above 10%.

Schwab clients lost a combined $83.4 billion in February--about $11,000 each--as stocks sank. The average Schwab account has $111,000 in assets, down 19% from the peak of $137,397 in August. Clients made an average 189,000 commission trades a day last month, down 13% from January and a third less than in the same month a year ago.

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