Briefing.com on the competition....
14:09 ET ******
Charles Schwab Corp. (SCH) 39 15/16 -9/16: Schwab shares are pulling off their
intraday high of 42 3/4 despite reporting an outstanding quarter. Net income came in at
$284.2 mln, 98.9% higher than last year's net and revenue of $1.57 bln was up 65%. On a
per share basis, excluding acquisition-related charges (US Trust Corp. and CyBer Corp.),
earnings were $0.35, three cents better than the First Call mean versus $0.17 in the year-ago
period. Schwab has eschewed the prevalent trading volume/revenue game and instead pursued
a strategy of stressing asset accumulation to their employees, rewarding their consultants
based on the value of the accounts they pull in, as opposed to the number of new accounts
they sign. This approach is built to last -- assets under management is the true measure of a
financial institution. With all the interest in the online brokers, we too often hear about number
of new accounts and Daily Average Revenue Trades (DARTs) without scrutinizing the
quality/quantity of the new accounts. Schwab's client assets rose $44 bln, 13.5% sequentially
and 52% Y/Y in the quarter, bringing their total to $823 bln. Not to say that Schwab's trading
numbers were weak, in fact they were very strong with DARTs of 310,000, 90% better Y/Y
and 50% better than their strong Q4. Very good numbers considering their transaction fee of
$29.95 is substantially higher than the "trading machine" online brokers that have attracted so
much attention over the past few years. Schwab prides itself on providing full-service
investment services and continues to earn high marks in independent reviews for the quality of
their constantly improving online research tools. Despite a tumultuous April for the financials,
Schwab will continue its long-term growth through their expanding employee base (+2,200
full-time employees in the quarter), technological improvements that will further reduce
transaction costs (online transactions in the March quarter were up from 65% to 79% Y/Y)
and the launch of their PocketBroker wireless product. As investors reduce their trading
volume as a result of the current market environment, assets will shift to money market and
mutual funds, offerings which Schwab has covered. Also, because Schwab is a retail-oriented
firm as opposed to one which has heavy exposure to capital markets, it will realize a less
volatile earnings stream. Street analysts will like today's numbers, look for upward earnings
estimate revisions and possibly a few upgrades tomorrow morning. - MG
10:58 ET ******
Merrill Lynch (MER) 89 13/16 -3/16: There is no question that Merrill Lynch had an impressive first quarter, earning $1.04 billion or $2.38 per diluted share versus $609 million
or $1.44 per share in the year-ago period. Bolstered by record trading volumes on U.S. exchanges, a healthy investment banking environment, and the company's asset management business, net revenues soared 37.6% to $7.20 billion. Showing the most sales growth compared to the previous year was Merrill's investment banking unit which saw revenues jump 57.3% to $996 million; however, that was down from $1.13 billion in the preceding quarter. Brokerage commissions were up 37.3% while revenues in its trading and money management operations increased 23.8% and 25.2% respectively. This latest period marked the sixth, consecutive quarter in which Merrill Lynch surpassed earnings expectations, but given what has unfolded in the past few weeks in the equity market, there are lingering doubts about whether Merrill Lynch will be able to make it seven in a row even though the brokerage firm said it remains optimistic about its ability to continue to deliver strong results.
Regardless, due to less favorable trading conditions, concerns surrounding the brokerage firms' exposure to margin accounts, a rash of companies postponing their IPOs, or secondary offerings, and some slowing of M&A activity given the uncertainty surrounding equity valuations, it is apparent the market isn't willing to place too much confidence in that contention just yet as shares of MER have traded in a lackluster manner today. Obviously, a turn in market sentiment for the better would be a supportive factor for Merrill Lynch and its peers, but for the time being, a sense that the best of times are behind the brokerages should be a restraining influence in any recovery attempt.-- PJO |
