Schwab cutting thousands of jobs

The top U.S. discount and online brokerage is slashing up to 3,400 jobs, or more than 10 percent of its work force, amid a slowdown in trading by its clients.

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Charles Schwab, the largest discount and online broker in the United States, said Thursday it is slashing up to 3,400 jobs amid a slowdown in trading by its clients.

The San Francisco-based company also expects to report first-quarter operating earnings of 8 cents per share on revenue of approximately $1.2 billion. It sees earnings per share of between 6 cents and 7 cents after charges, the company said in a statement.

On Wall Street, analysts have been expecting the brokerage to post earnings of 11 cents per share for the quarter, according to First Call.

A charge of $70 million to $100 million is expected in the second quarter to reflect restructuring around the layoffs, the company said. Schwab expects the layoffs and some reductions in office space to cut operating expenses by $40 million to $45 million per quarter, beginning in the third quarter of 2001. Schwab said it expects to cut between 2,750 and 3,400 jobs, or 11 percent to 13 percent of its work force.

Schwab's move to cut costs comes as trading by the company's clients has slowed dramatically. Customers' stock trading slumped by 13 percent in January and by 31 percent in February compared with the same periods a year earlier.

"With a slowing economy and weakening corporate earnings, our clients are facing the most challenging market environment in many years," David S. Pottruck, Schwab's co-chief executive, said in a statement. "These are extremely difficult decisions to make, but we believe they are necessary responses to fundamental changes in the market environment and investor behavior."

Schwab's board also authorized the repurchase of 20 million shares-worth about $300 million--to shore up its sagging stock. In late afternoon trading, the stock was down $1.20, or almost 8 percent, to $14.70 on the New York Stock Exchange.

"This is a difficult time," Co-Chief Executive Charles Schwab said Thursday on a conference call. "We've come through a highly speculative technology bubble. Maybe I should have been more emphatic about understanding that this was a temporary phenomenon. We're cutting to meet our current customer demands."

After falling 61 percent during the past year, Schwab's market value has dropped to $21 billion, less than half of Merrill Lynch, the biggest U.S. brokerage by client assets. Schwab and Merrill's market values were even at the beginning of 2000.

If the market decline extends into next year, Schwab may have to eliminate more jobs, Chief Financial Officer Christopher Dodds said.

"There's not a lot of cushion" to build back up to the company's target pretax profit margin of 12 percent to 13 percent, Dodds said on the conference call. He said these cuts will keep its profit margin at above 10 percent.

None of the job cuts will be at U.S. Trust, the asset-management firm serving wealthy people that Schwab bought last year for $2.8 billion. Thursday's moves mark a setback for Schwab in meeting goals executive have set.

In 1995, Schwab set a target of reaching $1 trillion in client assets by 2005. It reached that figure last August, five years ahead of schedule. Since then, assets are down more than 15 percent to $845 billion, about where they stood before the U.S. Trust acquisition was announced early last year.

The company, which tried to avoid job cuts by cutting executives' pay and encouraging unpaid time off, will pay employees three to 10 months' severance, depending upon time with the company and salary. Salary freezes will stay in place.

Schwab will also give employees a cash payment covering a portion of the payment for insurance benefits and job-finding services. The company will issue a special stock option grant, exercisable at any time up until 15 months from the grant date. Employees who are rehired within 18 months will receive a guaranteed $7,500 bonus.

Schwab, who founded the company, and his wife plan to create a $10 million fund to offer education stipends of up to $20,000 for affected employees to put toward tuition for accredited academic programs.

Bloomberg News contributed to this report.