Charles Schwab --- Bob (fast)
The effects higher rates will have on the company
Interview: Ameritrade --- C.E.O. --- Joseph Moglia
>> charles schwab corporation has ousted c.e.o. david pottruck and replaced him with founder charles schwab. bob bowden joins me with details of the story.
>> the switcharoo, thank you, matt nesto. david pottruck became co-c.e.o. in 1998 and sole c.e.o. in -- and failed to lure wealthier clients from merrill lynch. schwab’s revenue fell 39% and net income drind 34%. during the same period, ameritrade’s revenues grew 12% and grew to a profit of $137 million in 2003. investors say schwab is caught in an identity crisis. wane bopp―wayne bopp puts it this way, schwab is caught in the middle between discount pricing and full-service pricing, thrashing about trying to find something that works. pottruck and his company benefited from the bull market in the late 1990’s. by the the end of 1998, schwab’s market value exceeded that of merrill lynch. but as business slowed after the stock market peaked in march of 2000, schwab cut 10,000 positions, a 61% staff reduction reduction. schwab’s stock has lost significant value and the market share is a quarter of merrill lynch’s. one analyst believes this paves the way for schwab to focus on retail investing.
>> i hope they return to their core strength, retail investing and asset accumulation. they are the best company in the united states at bringing on retail assets. i think with the replacement of david pottruck, it―the stay, charles schwab shares were up 6.66%. driven as much as anything by the reporting of ameritrade reporting their numbers.
>> thank you, bob. ameritrade shares were up, 14% today. the company reporting a 25% gain in profit, cost cuts, higher interest revenue and fees helped earnings rise to 62.3 million dollars or 15 cents a share, matching or in line with the average estimate from analysts. ameritrade c.e.o., joseph moglia, talked with us about the effects higher rates with have on his company.
>> we have a reasonable way to go where without it having a negative impact at all in our business. the opposite might be the case. for every 25 basis points or so that the fed funds rate actually gets raised, that’s going to have a positive impact on our bottom line. i think the real question is, if the rates go too high, will more people borrow less money and we certainly haven’t seen that yet.
>> the market has been going through a period of below-average trading volume, obviously reflected in some of your numbers today. what do you think has been the problem with people just sitting on the sidelines for such an extended period of time? >> you and i have talked before about retail being a lagging indicator in terms of what goes on in the markets . as the markets don’t do particularly well, people open up fewer accounts, move to the sidelines and do fewer trades. i think that’s basically what we’ve been seeing, not because the economy is bad, because the economy is in pretty good shape. i think there is real concern coming out of the middle east and concern with regards to the overall presidential election. that creates a cloud of uncertainty in the marketplace and the typical individual investor doesn’t like that and tends to move to the sideline.
>> he also spoke with us about rival charles schwab and what might happen should it look to sell off any of its assets.
>> if they were to unwind assets as being bantered about, what might be attractive, if anything, to ameritrade.
>> we look at potential merger or acquisition opportunities all the time, monica, in terms of the marketplace. this past quarter we just closed the bid wellisition and announced two more. i’m not sure exactly what schwab has for sale, if anything, and when that’s public, it would be something we would look at. but right now we don’t know enough to have a judgment on.
>> that your contract runs out next year. in terms of the management team, you say that the strategy is set for the next two or three years. if you decide to stay, does that mean you’ll have a different role, allowing others to take the lead in some cases?
>> i think the plan is either i’m going to continue as c.e.o. or i’m going to retire. and i think whether i stay as c.e.o. or retire, the strategy at ameritrade is very much in place, the board is committed to it and the management team is committed to the execution of that so whether i’m there or not not, there ameritrade will be in great shape.
>> there it is, the c.e.o. of ameritrade. ford gives us a profit for the year, disappointing some investors. the c.f.o., we had a chat with him earlier and we’ll have that interview for you. plus, tomorrow we hear from rival g.m. increasing sales in china boosted the bottom line?
