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California and the West

Schwab more than doubles net income

The fourth-quarter results are aided by a tax benefit of $205 million related to the pending sale of its U.S. Trust unit.

January 18, 2007|From the Associated Press

Charles Schwab Corp.'s fourth-quarter earnings more than doubled to lift the stock brokerage's annual profit above $1 billion for the first time in its history.

The San Francisco-based company said Wednesday that it earned $467 million, or 37 cents a share, during the final three months of 2006.

That compared with net income of $187 million, or 14 cents, a year earlier.

Revenue for the period totaled $1.1 billion, a 14% increase from $964 million in the prior year.

Schwab adjusted the results to focus on its remaining operations after the company completes a $3.3-billion sale of its wealth-management subsidiary, U.S. Trust, to Bank of America Corp. later this year.

Accounting for the deal had a major effect on Schwab's fourth-quarter profit, generating a noncash tax benefit of $205 million.

If not for the tax gain, Schwab would have earned 21 cents a share, a figure matching the average estimate among analysts surveyed by Thomson Financial.

Even without the tax boost, Schwab's annual profit still would have topped $1 billion, realizing a goal that management had in its sights as 2006 began.

"It's a wonderful milestone for us," Christopher Dodds, the brokerage's chief financial officer, said during a Wednesday interview. "On virtually every dimension, the company has never been stronger."

For all of 2006, Schwab earned $1.23 billion, up from $725 million in 2005.

Investors weren't impressed as shares of Schwab fell 49 cents to $19.69.

Friedman, Billings, Ramsey & Co. analyst Matt Snowling was among those expecting even better fourth-quarter earnings.

He downgraded Schwab's stock Wednesday, partly because he thinks the company will be hard-pressed to fill the earnings void created by the U.S. Trust sale.

U.S. Trust accounted for about $38 million, or 14%, of Schwab's fourth-quarter profit, excluding the tax benefit.

Schwab conceivably could buy another brokerage with its anticipated $2.5-billion windfall from the U.S. Trust sale, but management has expressed little interest in making that kind of acquisition.

Despite investors' tepid response, the fourth-quarter performance put an exclamation point on Schwab's most prosperous year since its 1975 inception as a financial services rebel determined to provide Main Street investors with more affordable access to Wall Street.

Schwab strayed from that mission earlier this decade as it imposed new fees and diversified into new fields in an attempt to recover from a downturn triggered by the dot-com bust in 2001. The anguish included more than 10,000 layoffs and a succession of losses.

But the company regained its stride after founder Charles Schwab returned as chief executive in 2004 to steer a back-to-basics approach that included lowering commissions, trimming expenses and divesting operations like U.S. Trust.

The company also has been featuring its iconic founder in a "Talk to Chuck" ad campaign that helped the company add 655,000 new brokerage accounts in 2006, a 15% increase from 2005.

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