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Charles Schwab Earnings Beat Analyst Projections

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Oct. 15 (Bloomberg) -- Charles Schwab Corp., the largest independent brokerage by client assets, reported third-quarter profit that beat the average analyst estimate as sales from earned interest and asset-management fees offset a decline in trading revenue.

Net income fell to $124 million, or 10 cents a share, from $200 million, or 17 cents, a year earlier, the San Francisco-based company said in a statement today. Analysts estimated profit of 9 cents, according to the average in a Bloomberg survey.

The brokerage has been weathering a near-zero interest rate environment since December 2008. About one third of last year’s revenue came from interest earned on cash in its bank and money market funds, while about 45 percent was from fees for managing and administering assets. Results included a charge of about $132 million to cover losses related to 2008 investments in mortgage-backed securities in its money market fund, as the company had disclosed last month.

“Third-quarter results underscore the resiliency of Schwab’s business model in the face of considerable headwinds -- low rates, choppy market conditions, weak volumes,” Alex Kramm, a New York-based analyst with UBS AG, wrote in a note after the report. He said the stock should rally today.

Shares Advance

The shares rose 3 percent to $14.51 at 4 p.m. New York time, the biggest gain since Sept. 24, curbing the year-to-date loss to 23 percent. That compares with a 5.5 percent gain in the S&P 500 and a 7.6 percent decline for the NYSE Arca Securities Broker/Dealer Index.

Sales rose 5.1 percent to $1.06 billion, according to the statement. Net interest revenue increased 31 percent and fees earned for managing money rose 3.8 percent. That offset the 24 percent decline in trading revenue resulting from lower online prices implemented in January and less market trading activity. Clients placed a daily average of 233,200 trades that generated revenue for Schwab, down 15 percent from a year earlier, according to the release.

Schwab took a pretax charge of about $20 million for ending a credit-card sponsorship, according to a Sept. 15 statement. Schwab trades at 16.8 times 2011 estimated earnings, the cheapest since July 2009, according to Bloomberg data.

Competitors E*Trade Financial Corp. and TD Ameritrade Holding Corp. are scheduled to report quarterly results later this month. Analysts expect E*Trade to post a profit of 4 cents a share, while TD Ameritrade should return a gain of 23 cents, according to the average of estimates compiled by Bloomberg.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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