The Charles Schwab Corporation (SCHW)

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Charles Schwab Corp. (SCHW)

Interim Business Update

January 29, 2009 11:00 am ET

Executives

Rich Fowler – Investor Relations

Walter Bettinger – Chief Executive Officer

Joe Martinetto – Chief Financial Officer

Analysts

None

Presentation

Operator

Good morning everyone. This is Rich Fowler, Schwab Investor Relations, and with me here today are Walt Bettinger, our Chief Executive Officer, Joe Martinetto, our Chief Financial Officer and together, we want to welcome you to our first interim business update. We think that’s the best name for us in the time being. As you know, we have traditionally held two analyst’s days or as we call business updates during the course of the year in the spring and the fall.

Over time, as we’ve talked to the investment community, our owners and analysts, we’ve gotten feedback that folks would appreciate a little more frequent interaction with executive management even if we don’t do an earnings call and so what we have decided to work with, at least initially here, is an interim update in the off quarter. So here we’re doing the winter quarter and we look to potentially doing another call in the summer to help keep everyone up to speed on what’s going on at Schwab and share management’s update and perspectives on what’s going on and hopefully keep the dialog going little more effectively as we go through the year.

So these are designed to keep you guys up to speed with the broader issues that the company is seeing. Obviously, we want to use this as a vehicle for sharing any important information that evolved since the last time we were together. They are not intended to go into, for example, in particular detail with regard to earnings or other more granular things about from the day-to-day lives we live in terms of keeping track of expense lines etc., so we are going to have, as we go through this today, if we can keep the dialog at that higher level. Investors relations is always happy to work with spokes on modeling, on the mechanics of the income statement, in arrears as it were, etc. so any questions along those lines you’ll continue to ask you feed our way and that we keep the questions for Joe and Walt today focused on those broader level issues.

We do hope that you guys find this useful. With this as I said, the first one of these, we’ll expect to continue them so we look for any feedback you’d care to share as we get through the day here and we look to improve of course as time goes on.

Let’s go to the agenda. It’s very straight forward. We don’t have to spend a lot of time on it. What we’re trying to do is spend some time with Walt first and then Joe provides some financial perspectives and then we’ll hold Q&A at the end. Those of you on the webcast, you probably already noticed there is a box at the bottom of the consul for entering questions, and that’s how we’ll take them through that email channel. On the call unfortunately, we’re not able to take questions so again we’ll appreciate feedback on how this works but if you do have questions, you need to use the webcast. Just in case you get bumped off for any reason there is call-in number if you don’t have it already. I’ll read that quickly,

877 467 9653, the conference ID is 816 15399.

So then let’s move on to the ever necessary forward-looking statement language. Again, this is our effort to keep you guys informed on how management thinking is evolving. We are in a classic sort of moving environment here so it’s more important than ever to stay in touch. Things that we’ll talk about today are based on what we can see today. That’s going to change. So as always, please keep in touch. Please keep in touch with our disclosures in order to make sure that we’re all sort of aligned around management thinking.

I gave you the dial-in numbers, so with that, I think we’re ready to turn over to Walt to kick this off.

Walter Bettinger

Thank you very much Rich. Good morning everyone. Thanks for participating in this initial call. Joe and I are excited at the opportunity to spend a few minutes in just recapping 2008 and then sharing some of our thoughts on 2009 and of course look forward to the opportunity to answer the specific questions that you have at the end.

As we look back on 2008, a quick commentary on how the year unfolded from a financial standpoint for the company. Everyone is aware, painfully aware of the equity marked decline during the year with the S&P falling around 40% across. The implications in our company for that given our business model was a fairly dramatic move to cash on the part of clients particularly in our retail business and in our business where we serve independent investment advisors. To cite an example in the investment advisor business, advisors move to claim C&D cash at a rate that ended the year are almost double where they traditionally are, close to 20% of client assets and cash and given our pricing strategy and the approach that we take on cash, we were able to pick up revenue gain as clients moved into these cash positions that helped us to some extent the decline in other asset management fees as a result of market decline.

We also know that interest rates fell throughout the year and we are able to manage spreads fairly effectively down to about a 2% Fed rate and we didn’t get down to 2 and below 2 until later in 2008. However, once we get below a 2% Fed rate, our ability to manage spreads diminishes significantly and in fact, it's an acceleration relative to Fed declines in rates say between the low 4s range from early in the year and 2%. It's not linear and I’m sure Joe will go into that in more detail. So therefore, as you would assume as the year went on we got to the very back half of 2008. We are experiencing significant spread compression.

Also in 2008, we had very strong trading activity, high volatility in the market, days of dramatic up moves as well as, unfortunately, too many down moves, and as a result, we had strong trading and that helped offset revenue declines. And then the course throughout 2008, revenue declines were further helped by our strong organic growth. I think around $113 billion in net new assets during the year working out to about 10% of assets at least as of yearend. We had strong metrics about 900,000 new brokerage accounts, a couple of hundred thousand new bank accounts, 200,000 new full service 401(k) participants.

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