Charles Schwab's weak results weigh on brokerages

SAN FRANCISCO (AP) -- Shares of discount stock brokerages fell Monday after The Charles Schwab Corp. reported net income that came in below forecasts, partly due to trading activity that was "more muted than planned" despite a run-up in the stock market this year.

Schwab said its net income rose less than 2 percent to $198 million, or 15 cents per share, on a revenue gain of 8 percent to $1.29 billion. While revenue grew faster than expected, earnings came up a penny short of estimates by analysts polled by FactSet.

In a statement, Chief Operating Officer Joe Martinetto toned down expectations for the company's outlook, saying, "we are taking action to address the evolving revenue outlook for the year."

"Right now, that outlook includes balance and spread-related revenues that are mostly in line with our expectations and trading activity that remains more muted than planned," he said.

The company's annual outlook for earnings per share in the mid-70 cents range is currently based on the assumption that the daily average of revenue-generating trades rises 15 to 20 percent in 2013 compared to last year.

Citi analyst William Katz said in a research note that the results underscored his "sell" rating. He cited the company's failure to increase profit much when revenue rises, the lack of growth in earnings per share and what he called the "deteriorating online brokerage economics."

Katz has a target price of $14 on Charles Schwab shares.

The shares of discount brokerages fell along with a decline in the overall market. The Dow Jones industrial average closed down 1.8 percent at 14,599.20 as the market was hit by concerns about slowing growth in China. The Dow is still up 11 percent since the beginning of the year.

Charles Schwab share fell 66 cents, or 3.8 percent, to close at $16.62.

TD Ameritrade Holding Corp. fell 56 cents, or 2.8 percent, to close at $19.44.

E-Trade Financial Corp. shares fell 42 cents, or 4.1 percent, to close at $9.75.