UPDATE: Schwab Warns On 4Q Profit, Cites Fee Waivers, Trading Drop

Charles Schwab Corp. (SCHW) projected fourth-quarter profit below analysts' estimates as the company said an acceleration in money market fund fee waivers and a slowdown in trading volumes will weigh on its results.

The news sent shares of Schwab, the largest discount broker by market capitalization, down 55 cents, or 3%, to $17.67.

Schwab expects fourth-quarter earnings will be 2 cents to 4 cents a share lower than the third quarter's 17 cents. Analysts polled by Thomson Reuters recently expected 17 cents for the fourth quarter.

With interest rates near zero, Schwab has been waving fees on its proprietary money market funds so that clients' yields don't turn negative. The company said these waivers could reach $108 million in the fourth quarter. That figure would equal the amount that Schwab has already waived this year.

Last month at its fall business update, the company said it would waive roughly $100 million in these fees. Typically, fees and commissions account for less than half of Schwab's quarterly revenue.

Schwab also said it received $6 billion in net new assets last month from customers. Average client trades, however, tumbled 27% from a year earlier and 11% from October. Typically, trading volumes fall to close out the year, but activity has declined earlier than expected in 2009. Investors have been booking some of their gains from the market's recovery and not putting that money back into the market.

Earlier Monday, electronic trader Knight Capital Group Inc. (NITE) said its U.S. equity trading volume fell 9.6% month-to-month.

Meanwhile, Schwab said total assets at the end of November were up 4% from a month earlier to $1.39 trillion. The company opened 122,000 new brokerage accounts last month, but the total of active accounts rose just 22,000 to 7.66 million.

In a note to clients, Standard & Poor's Equity Research analyst Matthew Albrecht said he expects "low rates to keep pressure on fee income through most of 2010."

Albrecht reduced his 2009 earnings forecast on Schwab to 68 cents from 73 cents a share and cut his 2010 outlook to 79 cents from 90 cents a share.

 
   -By Tess Stynes, Dow Jones Newswires; 212-416-2481; [e-mail]; 

-By Brett Philbin, Dow Jones Newswires; 212-416-2173; [e-mail]