After having overextended its services at the end of the bull market to cater to affluent investors--and then laying off thousands of employees, struggling to find a more viable business model and seeing 900,000 accounts walk out the door, today, a streamlined Charles Schwab is showing impressive signs of strength, Los Angeles Times reports.
The company is, once again, focused on offering discounted trades to the individual investor. The stock closed at $16.95 on Friday, 49% above where it was a year before, and first quarter earnings soared 68%.
What's helped Schwab, of course, is becoming leaner, along with the return of founder and CEO Charles Schwab in 2004. But, thankfully, so has the public's renewed faith and interest in investing.
The company has diversified its offerings to be able to rely on steadier sources of income. In 2000, 66% of Schwab's revenues came from trades. Today, that's only 18%. Meanwhile, asset management fees from its mutual fund business contribute 48% of revenue, and Schwab also does a brisk institutional business for financial planners. Schwab also runs a bank that adds another 31% to revenues, primarily from fees on mortgages and margin loans.
As to why Schwab lost its footing, offering a wide array of products that only served to confuse investors in the late 1990s, Schwab admitted in an interview: "We lost our way a bit. We had created an environment of over-complexity."
Still, while many analysts applaud Schwab's recent performance, some warn that the recent entry into the mass affluent markets that competitors have made could put it at a disadvantage in coming years. Others believe that, eventually, Schwab will have to return to a higher-margin model by offering more advice.