NEW YORK (Reuters) - Shares of Charles Schwab Corp. (NYSE:SCH - News) on Tuesday tumbled to their lowest level in a year after the discount brokerage giant said it will cut commissions for stock trades in a bid to attract more investors.
ADVERTISEMENT
Schwab stock dropped 7 percent on the New York Stock Exchange (News - Websites) , where it was the 2nd biggest percentage loser.
San Francisco-based Schwab said the reduced commissions will take effect in mid-June and warned that revenue could dip by 2 percent to 3 percent by June 2005 as a result.
As part of the new pricing plan, customers with large accounts will see their trading costs fall by at least two-thirds, while other customers will pay 30 percent less than they do now, Schwab said.
Schwab's main price for a stock trade is currently $29.95.
"This is a move they had to make because they were charging in some cases more than double, almost triple, their competitors' rates," said Rich Repetto, an analyst at Sandler O'Neill & Partners.
Schwab's top competitors include E*Trade Financial Corp. (NYSE:ET - News) and Ameritrade Holding Corp. (NasdaqNM:AMTD - News), both of which charge significantly lower commissions than Schwab.
"This will cause people to take down their earnings estimates for the company," said Repetto, who has a "sell" rating on Schwab. "Trading volumes have been very soft in recent days."
Earlier this month, Schwab reported that customer trading activity for the first 10 days of May had fallen 13 percent from April's daily average of 165,000.
"Concurrent with these pricing changes, management plans to initiate certain steps to mitigate their financial impact as well as to bolster the company's productivity and efficiency," Schwab said in a statement.
Asked whether Schwab planned to eliminate jobs, spokesman Glen Mathison said, "There have been absolutely no decisions made about reductions in headcount but we can't rule anything out."
Schwab's stock fell 63 cents to $8.92 on the New York Stock Exchange on Tuesday. |
