Charles Schwab 3Q profit falls 34 percent

Charles Schwab Corp. said Thursday it was able to attract new accounts and client assets during the third quarter, but its profit fell 34 percent as low interest rates and waivers on certain fees ate into revenue.

Revenue fell 19 percent to $1.01 billion, just short of what analysts expected. The miss weighed on the company's shares in midday trading, sending the stock down 91 cents, or 4.7 percent, to $18.37.

The San Francisco-based brokerage said its revenue took a hit as asset management and administration fees declined 24 percent during the quarter to $451 million, due in part to $78 million in fees that were waived as part of Schwab's efforts to attract new clients.

Net interest revenue fell 34 percent year-over-year to $294 million as rock-bottom interest rates cut into the returns Schwab earns on its investments.

Low interest rates have been a drag on Schwab's revenue since the Federal Reserve lowered its benchmark interest rate to a record low of near zero last December as part of its efforts to spur economic activity and keep borrowing costs low.

Though the Fed has said it does not plan to raise interest rates in the near future, many speculate that the central bank may have to step in and raise rates sooner rather than later to support a weakening dollar and fend off inflation. That would be a boon for Schwab's results.

"As rates do begin to come up, as the economy begins to strengthen, we should see the impact on our financials pretty immediately," Chief Financial Officer Joe Martinetto told The Associated Press.

Schwab also saw its trading revenue decline 4 percent to $241 million. Clients averaged 318,500 trades per day during the third quarter, down 5 percent from the same time last year, when the panic-driven selling that marked the weeks leading up to and immediately following the bankruptcy of Lehman Brothers resulted in a record quarter of trading activity at the company.

Schwab said it continues to win new clients and see demand for its advisory services, but retail investors are putting less money in their accounts than expected.

"Clients are indicating they are paying off debt and building cash reserves," said Martinetto, instead of putting more money into their investment portfolios.

Net new accounts for the quarter totaled 29,000, up 41 percent year-over-year. The company also attracted $20 billion in net new client assets, up 15 percent from the second quarter, but down 18 percent from the year-ago period.

Schwab earned $200 million, or 17 cents per share, in the three months ended Sept. 30, in line with what analysts had been expecting. A year earlier, the company earned $304 million, or 26 cents per share.