Schwab profit up 12 percent; to buy asset manager

NEW YORK, Mon Oct 15, 2012 – Charles Schwab Corp. said higher asset management revenues helped boost third-quarter profit 12 percent, and the U.S. brokerage announced plans to buy smaller asset manager ThomasPartners Inc.

Brokerages like Schwab have been under pressure due to soft equity trading as uncertainty over Europe’s debt problems, the state of the U.S. economy, and the upcoming U.S. election keep many retail investors on the sidelines. Years of ultra-low interest rates have also been a drag on profits.

San Francisco-based Schwab on Monday said it earned $247 million, or 19 cents a share, in the third quarter, up from $220 million, or 18 cents a share, a year earlier.

The latest results included a nonrecurring tax benefit of about $20 million. Excluding that benefit, earnings were about 17 cents a share, in line with analysts’ average estimate, according to Thomson Reuters I/B/E/S.

Revenue rose 1 percent to $1.2 billion.

Shares of Schwab were up 5 cents at $13.00 in midday trading in New York.

Schwab said it had struck a deal to buy money manager ThomasPartners, which focuses on dividend income, as it anticipates growing demand for income-oriented investment strategies. The deal includes an $85 million cash payment and possible future payments based on growth in assets under management.

“We think this acquisition is further evidence of Schwab’s push to increase fee-based advisory products in an effort to increasingly ‘annuitize’ its revenue stream in a low-rate backdrop,” said Keith Murray, an analyst at Nomura Equity Research.

ThomasPartners managed $2.3 billion in assets as of September 30, in largely growth-oriented investment portfolios designed to generate dividend income streams. The firm already uses Schwab as a custodian for its assets.