The Charles Schwab Corporation (SCHW)

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Charles Schwab Corporation (SCHW)

Interim Business Update

July 27, 2009 11:00 AM ET


Richard G. Fowler - Senior Vice President, Investor Relations

Joseph R. Martinetto - Executive Vice President and Chief Financial Officer

Walter W. Bettinger, II - President and Chief Executive Officer


Richard G. Fowler

Good morning everyone, and welcome to the Summer 2009 Charles Schwab Interim Business Update. This is Rich Fowler, Head of Investor Relations for Schwab. And with me here this morning are Walt Bettinger, our CEO; and Joe Martinetto, our Chief Financial Officer.

Just take a minute to remind folks who may not have been on our first version of this back in January, what we're doing. We're starting to augment our traditional semiannual business updates in the spring and fall, with brief or more concise updates in the summer and winter quarters following our earnings release. We've heard feedback from the investment community that a little more frequent interaction with the executive management. We hope for just to stay in touch better as the year progress.

So, this is our second update. And we again appreciate feedback on these and in terms of how they work for you guys as an audience and by our means, let us know here in Investor Relations afterwards if you have any suggestions. And we look to continue to refine these as time goes on.

We do these view these as a forum for sharing broader perspectives. So as always we'd ask that more granular questions around specific line item issues et cetera in the earnings story continue to come to Investor Relations and we'll work with you guys on those as we always do. And we want to focus this time with Walt and Joe on the bigger things that are going on, and help you guys stay in touch with what we see is our focus and priorities as we head into the next quarter.

Let's talk about some housekeeping here for a second, the agenda itself. You'll see is very straightforward. We'll start off with Joe. He'll give the financial perspective. We'll spend a few minutes with Walt. And then we'll move into Q&A before wrapping up at the end of the hour.

The calling number in case you case you get bumped off the webcast for any reason; 877-852-1721; again; 877-852-1721. The password 15977589; again 15977589. Let's move to the wall of words for a second. We'll just remind ourselves that everything we talk about today is based on our understanding of the world as of today and things inevitably will change. So as always we are due to stay in touch with our disclosure documents, stay in touch with the firm, make sure you keep up with stuff on an interim basis.

And with that I think we're done with housekeeping and ready to turn it over to our CFO, Joe Martinetto.

Joseph R. Martinetto

Thanks Rich. Let me look at wall of words reminds me, we probably had to just put up a big statement in here because Rich says if nothing else changes or a lot of the things being, the disclaimers around every statements that we make here.

Jumping right into the financials, I don't think that we need to spent a lot of time on some of these information as everybody had a chance to read a picture of that little bit of perspective here.

Client trades continued to be healthy, healthier than we probably thought they were going to be as we came into the year. I think people that remember back to what we had said will recall that we had expected that we could see some modest trailing off in trade instead we've actually seen trades up about 13% so far this year, year-over-year.

Then new client assets at about $43 billion; this is a metric where we think that $43 billion is a very strong in the context of the market that we've been living in. Although admittedly probably trending towards the bottom end of that 8 to 10% range that we've been talking about and even the 8% could be a bit of a stretch call for us depending on how the second half of the year plays out.

With the improvement we've seen in the market off-late which definitely has an impact on our ability to get those assets coming into the door. We are hopeful that we'll get a normal pickup here as we move toward the end of the year and we'll get to that 8%. But we'll definitely need a little bit of help as we get further out into the year to be in that range that we had indicated. Although we expect that we'll be close if we do miss.

Client assets, you can see here down about 12% year-over-year, that's in the context of an S&P. It's down about 30%. So clearly as we continue to bring those assets in the door, hoping to offset some of the pain our clients have felt is we've seen the market declines continue to have an effect on overall client assets.

As we move down into some of the other metrics, we can see new brokerage accounts continuing to grow, although at a slightly slower pace. But even with that total brokerage accounts up about 4% over prior year.

Net new households, their number was more negative at the end of the first quarter. I'd made a comment there that we've seen pick up as we moved in the March when we did our last update. In the second quarter we actually had net new households and retail up 39% in the second quarter over a year ago. So some really positive signs of metrics beginning to manifest themselves here.

Client participants again up about 16% in a market that's certainly with what's going on with employment, putting it's own challenges up for the participant market as well.

So moving onto the financial picture here. The headwinds we've been talking about for a while are now becoming apparent in the financials. So revenues are 17% in the quarter, 16% year-to-date. And I think we've probably banging the drum loudly enough on what interest rates and market valuations are doing. But this is that the reality of how that's planning through the financial statement.

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