Schwab’s Turnaround Tale

Charles Schwab has managed to reverse its fortunes in a relatively short period of time thanks to a smart ad campaign and major cost-cutting.

Charles Schwab has managed to reverse its fortunes in a relatively short period of time thanks to a smart ad campaign and major cost-cutting.

Schwab, the San Francisco-based discount broker, posted its fourth-best quarterly earnings in its 30-year history in late January. Profits in the fourth quarter more than tripled to $187 million, from $53 million in the year-ago quarter. The company credits its “Talk to Chuck” TV ad campaign for top-line growth.

Indeed, Schwab had a lot of good news to report. For 2005, net new assets totaled $75 billion, a 49 percent increase from the $50 billion in 2004—which includes a $9 billion pop in December 2005 alone. All told, Schwab now has $1.2 trillion in assets under management, up 11 percent from the $1.1 trillion of a year ago. Revenue rose 11 percent to $1.18 billion from $1.06 billion in the year-ago quarter. Its pretax profit margin from continuing operations was 26 percent, nearly doubling its 15 percent margin from the year-ago quarter.

“Schwab is doing a better job of getting assets from their niche,” says David Hendler, an analyst with CreditSights, a debt and equity research firm. “Their balance sheet looks good.”

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