Charles Schwab Corp. (NYSE: SCHW): Q2 Earnings Preview 2011

Charles Schwab Corp. (NYSE: SCHW), the largest independent broker by client assets, is scheduled to release its second quarter earnings on Monday, July 18, 2011. Analysts, on average, expect the company to report earnings of 20 cents per share on revenue of $1.20 billion. In the year ago quarter, the company reported earnings of 17 cents per share on revenue of $1.08 billion.

The Charles Schwab Corporation, through its subsidiaries, provides securities brokerage, banking, and related financial services to individuals and institutional clients. As of February 28, 2011, Charles Schwab had total client assets of $1.6 trillion.

In the preceding fiscal first quarter, the San Francisco, California-based company's net income was $243 million, or 20 cents per share, compared with a profit of $6 million, or 10 cents per share, in the year-ago quarter. Total net revenues for the quarter grew 23 percent to $1.21 billion from $978 million in the same quarter last year. Analysts, on average, expected the company to report earnings of 18 cents per share on revenue of $1.18 billion. 

Online brokerages like Charles Schwab Corporation rely significantly on net interest income as a source of value. As interest rates fall, the net interest earned by assets falls as the company earns a lower interest rate on assets in its possession. For the past couple of years, as a result of low interest rates and declining trading volumes Charles Schwab has been struggling to retain its growth momentum. Reduced trade volumes and low interest rates have adversely affected several companies in the investment brokerage industry. As a result, some companies are shifting their business model to adjust to the current nature of the market. The industry is also at odds with regards to the changes some are making in regard to exchange-traded funds. As a result of these low rates, the discount brokers have had to waive fees on their money market funds in order to ensure that their clients don't lose money just by putting it into those investments. 

Schwab's ability to effectively keep its costs low while growing revenue in this difficult environment has put the company in an extremely strong position as the economy continues to recover. Interest rates won't remain near 0% forever. Recent rate hikes in Europe, and continuous hikes in China, have only put more pressure on the Federal Reserve to tighten the reins a bit. Rate hikes will naturally improve Schwab's net interest revenue, and finally cut down on the fee waivers that have troubled the entire industry over the last several years.

However, lackluster equity markets and a cloudy economic outlook have sent many individual investors to the sidelines, leaving retail trading volume in a slump. While volume traditionally decreases headed into the summer months, analysts at Sandler O'Neill expect daily trades in the second quarter to post double-digit percentage declines. The Investment Brokerage sector has become more competitive during the past few years as more and more companies have begun to start fighting for clients. New internet companies are also diluting the market and making asset growth more difficult. Trading volumes have been diminished since the flash crash last year as investors remain somewhat wary of the financial system. Despite this, a recent survey release by Charles Schwab Corp. showed that active traders are actually generally bullish on the prospects of the markets. While this would logically suggest an uptick in trading volumes is on the way, Charles Schwab actually posted a client asset outflow in April.

Recently, the company announced a new service allowing its customers to invest directly in foreign stock markets using local currencies, further showing how global investing is going mainstream.Schwab hopes to launch its system in the first quarter of next year. When ready, customers will be able to buy and sell shares of companies that trade in 12 markets in eight local currencies.

Another area of focus has been the mobile market where the sector is working to improve the customer experience and increase trading. While the trading volume done via mobile devices is still small in relation to other platforms, there is hope that providing a superior service will give companies a competitive advantage over their adversaries as the platform becomes more universally adopted.

Full Disclosure: None.

Charles Schwab Corp. (NYSE: SCHW): Q1 Earnings Preview 2011

Charles Schwab Corp. (NYSE: SCHW), the largest independent broker by client assets, is scheduled to release its first quarter earnings on Friday, April 15, 2011. Analysts, on average, expect the company to report earnings of 18 cents per share on revenue of $1.18 billion. In the year ago quarter, the company reported breakeven per share on revenue of $978 million.

The Charles Schwab Corporation, through its subsidiaries, provides securities brokerage, banking, and related financial services to individuals and institutional clients. As of February 28, 2011, Charles Schwab had total client assets of $1.6 trillion.

In the preceding fiscal fourth quarter, the San Francisco, California-based company's net income was $119 million, or 10 cents per share, compared with a profit of $164 million, or 14 cents per share, in the year-ago quarter. 14% to $1.127 billion from $986 million in the prior year. Analysts, on average, expected the company to report earnings of 10 cents per share on revenue of $1.11 billion. The results benefited from improved revenue and increase in interest-earning assets. 

Online brokerages like Charles Schwab Corporation rely significantly on net interest income as a source of value. As interest rates fall, the net interest earned by assets falls as the company earns a lower interest rate on assets in its possession. For the past couple of years, as a result of low interest rates and declining trading volumes Charles Schwab has been struggling to retain its growth momentum. Reduced trade volumes and low interest rates have adversely affected several companies in the investment brokerage industry. As a result, some companies are shifting their business model to adjust to the current nature of the market. The industry is also at odds with regards to the changes some are making in regard to exchange-traded funds.

The sector likely benefited from robust trading volumes in January and February. The picture is less certain for March, as retail trading volumes tapered in the second half of the month.

Last month, the company announced a deal to acquire another investment brokerage firm optionsXpress Holdings, Inc. for about $1 billion. The move should help improve the equity trading side of its business. It could also facilitate an expansion into derivatives trading. The acquisition will also enable Charles Schwab to diversify its online cash equity platform to faster growing futures trading and foreign exchange areas.  Schwab estimates the transaction to be modestly accretive over the first full year of combined operations, including expected revenue and expense synergies totaling about $80 million  ($60 million from revenue and $20 million in cost savings). The deal is expected to close in the third quarter.  OptionsXpress had 385,200 client accounts, $8.1 billion in assets and a 12-month average of 44,800 daily average revenue trades, according to the statement. Options trading in the U.S. has increased every year since 2002, rising 7.9 percent to 3.9 billion contracts in 2010, according to data compiled by OCC. So far this year, average daily US options volume has jumped 21% from last year's record.

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 16.10 and PEG Ratio (5 yr expected) of 1.47. In terms of stock performance, SCHW shares have lost nearly 6% over the past year.

Full Disclosure: None.

E-Trade Financial Corporation (NASDAQ:ETFC): Q4 Earnings Preview 2009

E-Trade Financial Corporation (NASDAQ:ETFC) is scheduled to release its fourth-quarter financial results after the market close on Wednesday, January 27, 2009. Analysts, on average, currently expect the company to report a net loss of 4 cents a share on revenue of $240.52 million. In the year ago quarter, the company reported a net loss of 50 cents per share on negative revenue of $26.40 million.

E*Trade is a leading online brokerage firm, which also offers retail banking services, such as checking and savings accounts and CD accounts.

E-Trade has been hit hard during the recession and credit crisis as its mortgage business suffered a major blow due to a severe slump in housing sector. The New York-based company has lost $3.49 billion since the third quarter of 2007 from loan defaults and was forced to accept capital injections Citadel Investment Group last year. In October, the company reported a third quarter loss that widened from a year ago, on charge-offs and higher loan loss provision, however, beat analysts' estimate by a penny. The New York-based company reported a net loss for the third quarter of $832 million or $0.66 per share, compared to a loss of $50 million or $0.09 per share in the year-ago quarter. Excluding the impact of the item, the company reported a net loss of $59 million, or $0.05 per share for the third quarter of 2009. Total net revenues for the quarter decreased to $347.22 million from $517.80 million in the prior-year quarter. Analysts, on average, expected the company to report earnings of $0.06 per share on revenue of $202.49 million.

At the end of third quarter, the company had Bank Tier 1 capital ratios of 6.72% to total adjusted assets and 13.15% to risk-weighted assets. The Bank had excess risk-based capital, which is above the level regulators define as well-capitalized, of $985.4 million as of September 30, 2009. At quarter end, E*TRADE reported 4.5 million customer accounts, which included a record 2.7 million brokerage accounts. The average commission per trade increased by $0.45 during the quarter to $11.50.

There now seems to be a consensus that the company has turned the corner. However, return to profitability still remains a big challenge. Last month, E*TRADE said that total special mention delinquencies, 30 days to 89 days delinquencies, declined 3% from September 30 to November 30, while total "at risk" delinquencies, 30 days to 179 days delinquency, declined 2% for the same period. For its home equity portfolio, which represents the company's greatest exposure to loan losses, special mention delinquencies declined by 8% from September 30 to November 30, while total "at risk" delinquencies dipped 5% for the same period. However, the company reported that its total daily average revenue trades for November declined 22% from the same period in 2008 and 13% decline sequentially from October. Still, year-to-date, through November, DARTs are up 6% from the same period last year. E-Trade registered a 22% decline in daily average revenue trades for the month of October compared to the previous year. Total customer assets at the end of October were $142.90 billion, up 19.7% from 119.38 billion last year. Total accounts at the end of October rose 2.2% to 4.50 million from 4.41 million last year. Total gross new accounts, however, decreased 60.1% to 52,407 from the previous year. E*Trade lost 2,569 net accounts in October, compared to a net account growth of 57,191 last year.

In December, ETFC announced that it is restructuring its international business. It also agreed to sell its local market trading operations in Germany and the Nordic region.

The company has been the subject of takeover speculation for most of 2009. According to industry experts, E-Trade is a potential acquisition target for bigger rivals like TD Ameritrade (NASDAQ: AMTD) and Charles Schwab (NASDAQ: SCHW). Shares of the company surged early this month after the Daily Telegraph said the company is in advanced talks about a sale.

In terms of stock performance, E-Trade shares are up 49% over the past year.

Full Disclosure: None.

E-Trade Financial Corp. (NASDAQ:ETFC): Third Quarter Earnings Preview 2009

E-Trade Financial Corporation (NASDAQ:ETFC) will release its third-quarter financial results after the market close on Tuesday, October 27, 2009. Analysts, on average, currently expect the company to report a net loss of 9 cents a share on revenue of $202.49 million. In the year ago quarter, the company reported s net loss of 9 cents per share on revenue of $377.73 million.

E*Trade is a leading online brokerage firm, which also offers retail banking services, such as checking and savings accounts and CD accounts.

E-Trade has been hit hard during the recession and credit crisis as its mortgage business suffered a major blow due to a severe slump in housing sector. In July, the company reported that its second quarter loss widened to $143.24 million or $0.22 per share from $94.56 million or $0.19 per share, in year-ago quarter. Loss from continuing operations for the quarter was $143.24 million or $0.22 per share, compared to $119.44 million or $0.24 per share in the year-earlier quarter. Analysts, on average, expected a loss of $0.31 per share for the quarter. Quarterly results included a provision for loan losses totaling $404.53 million for the quarter, up fro $319.12 million kept apart in the corresponding quarter last year. The Bank had excess risk-based capital, which is above the level regulators define as well-capitalized, of $916 million as of June 30, 2009. Net operating interest income was $339.59 million, compared to $342.76 million in the comparable quarter last year. Total non-interest income increased to $281.32 million from $189.57 million in the prior-year quarter.

Total net charge-offs surged to $386.39 million in the second from $53 million in the prior quarter. At quarter end, E*TRADE reported a record 4.5 million customer accounts, which included a record 2.7 million brokerage accounts.

However, the worst seems to be over for the company and there are improving trends in the firm's business. Last month, company reported strong client trading during August, prompting many analyst upgrades. The New-York based online brokerage firm reported a 37.4% increase in total daily average revenue trades for the month of August. At the end of August, the company recorded brokerage accounts of more than 2.73 million, including gross new brokerage accounts of 31.32 thousand and net new brokerage accounts of 11.32 thousand during the month. The company noted that, at the end of the month, total brokerage accounts were more than 4.52 million.

Customer security holdings for the month declined 17.2% to $107.31 billion from $129.67 billion last year. Brokerage related cash for the month increased by $982 million compared with last year. However, this was offset by a $380 million reduction in bank related customer cash and deposits, as the company continued to execute on its balance sheet reduction strategy. Total customer assets for the month declined 13% to $142.32 billion from the comparable period.

Also in September, the company provided an update concerning delinquencies in its loan portfolio. Special mention delinquencies, which are 30 to 89 days delinquent, for its home equity portfolio, remained flat from June 30 to August 31. Home equity delinquencies, that are 30 to 179 days delinquent, declined 7% from June 30 to August 31. Total special mention delinquencies for the company's loan portfolio, which includes one- to four-family, home equity and consumer and other loans, declined by 4% quarter to date, as of August 31, 2009, , suggesting stabilization in its home-equity-loan business. Further, the company reported quarter-to-date total net revenues of $413 million. Commission, fees and other revenues for the period was $151 million. Operating expense for the period totaled to $188 million.

For the third quarter, the company expects provision for loan losses of $300 million to $375 million and net charge-offs of $350 million to $375 million.

Recent capital actions have also allayed concerns about the financial health of the company. In late August, the company completed a $1.74 billion debt exchange to bolster its capital position as investments related to real estate soured. Last month, Office of Thrift Supervision asked the company to pump another $100 million into its bank to bolster the unit's capital. Subsequently, E-Trade unveiled plans to raise $150 million selling new common stock.

Citadel Investment Group, which twice injected capital into the struggling online brokerage, has both converted part of its huge debt holdings in E*Trade Financial Corp. into stock and cut its stake in the firm to avoid crossing a key regulatory boundary.

According to few industry experts, E-Trade is also a potential acquisition target for bigger rivals like TD Ameritrade (NASDAQ: AMTD) and Charles Schwab (NASDAQ: SCHW).

In terms of stock performance, E-Trade shares are up 20% since the beginning of the year. Shares of the company gained 3 cents or 1.23% to $1.64.

Disclosure: Author doesn’t own any of the stocks discussed here.