Schwab Fined, Warns on Profits

NEW YORK – Charles Schwab Corp. (SCH) the largest U.S. discount brokerage, on Tuesday said it expects fourth-quarter profit to fall short of analyst forecasts, citing fee waivers, the costs of a new national advertising campaign, and severance charges.

Separately, the New York Stock Exchange fined Schwab $1 million for supervisory and control violations relating to customer accounts managed by non-employee investment advisers.

Schwab spokesman Glen Mathison declined immediate comment, saying he had not seen the NYSE action.

San Francisco-based Schwab expects fourth-quarter profit of about 14 cents per share, two cents below what it reported in the third quarter. Analysts polled by Reuters Estimates on average had forecast 16 cents for the fourth quarter.

In September, Schwab said it would drop account service fees and order handling charges, its seventh price cut since May 2004.

The company said the fee waivers and advertising campaign will reduce quarterly profit by $40 million before taxes. Severance charges at its U.S. Trust unit for wealthier clients will cut fourth-quarter pre-tax profit by $10 million.

The NYSE said that from 1998 through the first quarter of 2003, some advisers misappropriated customer assets, using such methods as forged authorization letters and checks. While Schwab and its employees weren't involved, the company's procedures were insufficient to adequately protect customer assets, the exchange said.

"This case is a stern reminder that firms must have adequate procedures to supervise and control transfers of assets from customer accounts," said Susan Merrill, the Big Board's enforcement chief. "It goes to the heart of customers' expectations that their money is safe."

Schwab also said October client daily average trades, a closely watched indicator of customer activity, rose 10 percent from September to 258,900, though total client assets fell 1 percent to $1.152 trillion.

Schwab shares closed Monday at $16 on the New York Stock Exchange.

(Additional reporting by Dan Burns and Karey Wutkowski)