UPDATE 2-Schwab shares soar on strong earnings and outlook
(Adds jump in stock price, details throughout)
Oct 15 (Reuters) - Charles Schwab Corp said on Tuesday that it expected revenue to rise 3 percent to 5 percent faster than expenses in 2014, a sign that the retail brokerage giant is taming costs and continues to collect assets from clients at a strong pace.
The San Francisco-based company made its forecast as it said that its third-quarter profit rose 17 percent from a year earlier to $290 million. Earnings per share of 22 cents beat analysts' average estimate of 20 cents, according to Thomson Reuters I/B/E/S, primarily due to higher-than-expected net interest income from new client assets.
Revenue jumped 15 percent to a 13-year record.
Shares of Schwab, which have gained 55 percent this year including reinvested dividends, soared 7.4 percent to $23.64 in morning trading. The broader market and most financial services stocks were trading down.
Despite historically low interest rates that forced Schwab to waive a record $180 million fees on money-market funds in the quarter lest clients have negative returns on the low-yielding funds, third-quarter revenue of $1.37 billion was its best since the height of the Internet bubble more than a decade ago.
Schwab repeated its forecast that if the economy continues to recover and interest rates and client trading remain at current levels, it will become more profitable. When the U.S. Federal Reserve decides to raise interest rates further, investors expect Schwab and online brokerage rivals such as TD Ameritrade Holding Corp to flourish because they have so much client cash to invest.
For all of 2013, Schwab expects its revenue to outpace expenses by 1 percent to 2 percent, to keep its pretax profit margin at a minimum of 30 percent and to have earnings per share in the mid-70-cent range. Pretax profit margin in the third quarter was 33.8 percent, its highest level this year, partly reflecting cuts Schwab has made in its marketing, hiring and project budgets.
Schwab has been transitioning from its roots as a discount trading firm for self-directed individual investors to one that offers them fee-based advice. It said $1 trillion of its $2.15 trillion of client assets were enrolled in some form of ongoing advice program.
That includes a 63 percent jump in financial planning programs for clients during the quarter. Schwab said about 74,000 of its 8.7 million brokerage account clients received a financial plan this year.
The financial plan strategy, aimed at selling a range of retirement, savings and investments products, is also being adopted by big rivals such as UBS Wealth Americas, Wells Fargo & Co's Wells Fargo Advisors and Bank of America Corp's Merrill Lynch wealth management arm.
Like many of its competitors, Schwab also said it was still collecting new assets at a blistering pace. In the traditionally slow summer quarter, its net new assets of $43 billion were 97 percent higher than a year earlier.
Schwab also indicated that clients appeared to be regaining confidence in the market. It added about 16,000 net new retail brokerage accounts, 14 percent more than a year earlier.
Customer trading volume, Schwab's traditional measure of client confidence and risk-taking, rose 6 percent in September from a year earlier to an average of 469,200 trades a day but were flat with the volume in August.
Randy Frederick, who oversees Schwab's business for active traders, said last week that trading volume among all retail investors had not been keeping pace with the broad rise in stock markets, a sign that investors were letting their profits ride and waiting for dips to buy.
However, Schwab clients were pulling money out of large-cap stock mutual funds in August and September, while buying international and small-to-mid-cap stock funds, another sign of rising risk appetite.
(Reporting by Jed Horowitz; Editing by Kenneth Barry and Lisa Von Ahn)