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Charles Schwab to Sell Unit to UBS

The firm is shedding an institutional division to refocus on individual investors. The buyer will pay $265 million.

September 01, 2004|From Associated Press

Backpedaling from a recent expansion, Charles Schwab Corp. is selling an institutional investment and research division to Swiss banking giant UBS for $265 million, another step in the struggling stock brokerage firm's push to regain its Main Street appeal.

The all-cash deal, announced Tuesday, represents a humbling about-face for San Francisco-based Schwab, which will sustain a substantial loss on the sale of its SoundView Capital Markets group.

UBS hopes to use the acquisition as a springboard toward becoming one of the top traders of Nasdaq-listed stocks. The deal, which affects about 500 Schwab employees, is expected to be completed by year's end.

Schwab is exiting the capital markets business less than eight months after completing the $340-million acquisition of SoundView Technology Group, which was supposed to spruce up Schwab's operations.

At the time, Schwab's management believed that the SoundView deal would help broaden the company's reach beyond the mainstream investment audience that made its brokerage business a household name.

But Schwab recently has had a change of heart about its diversification efforts, provoked by an earnings funk that has kept the company's stock price in a deep slump.

Schwab is trying to sharpen its focus on individual investors. It is cutting prices and reducing expenses in a bid to recapture some of the ground it has lost to nimble online rivals such as E-Trade Financial Corp. and Ameritrade Holding Corp.

The company's strategic shift prompted Schwab's board to oust Chief Executive David Pottruck in July. With company founder Charles R. Schwab back at the helm, the brokerage firm is retracing Pottruck's perceived missteps and trying to repair any damage.

The sale Tuesday "is a clear admission that the SoundView acquisition wasn't well thought out," said analyst Matthew Snowling of Friedman, Billings, Ramsey & Co. "The strategy was doomed from the beginning."

Schwab expects to record charges totaling $145 million to $165 million to account for the sale. About $70 million to $80 million of the charges are expected to be recorded in the current quarter.

Schwab shares declined 2 cents Tuesday to $9.45 on the New York Stock Exchange.

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