Schwab to cut up to 2,400 jobs

Friday August 31, 2001

SAN FRANCISCO — Unable to lure its skittish customers back into the stock market, Charles Schwab Corp. said Thursday it will cut up to 2,400 more jobs as the leading online brokerage continues to dismantle its feverish expansion of a year ago. 

The latest job cuts follow a recently completed purge that dumped 3,400 workers. After the latest reductions, Schwab will have approximately 20,000 workers — about 25 percent fewer than at the start of the year. 

In this wave of cost cutting, Schwab will lay off 1,600 to 1,900 full-time employees and 200 contractors by the end of October. The company expects to eliminate 200 to 300 more jobs through attrition by the end of the year. 

Schwab also plans to unplug many of the computer servers bought last year to handle a boom in online stock trading that was spurred by a bull market, as well as the enticing ads of brokerages across the nation. 

Much of Schwab’s technology equipment is unnecessary with the brokerage’s trading volumes 50 percent below the levels at the start of the year. 

Some of the computer servers may be sold and others may be kept in storage until Schwab’s business improves, said spokesman Glen Mathison. 

With fewer employees and less equipment, Schwab will reduce its administrative office space, most likely in San Francisco, Pleasanton, Denver, Phoenix, New York and Jersey City, N.J., Mathison said. Few, if any, of Schwab’s 400 retail branches are expected to be closed. 

Schwab will absorb a third-quarter charge of $225 million to pay for the overhaul, which is expected to save the company about $260 million annually. The company recorded a second-quarter charge of $117 million to pay for the previous restructuring, which is supposed to save Schwab about $180 million annually. 

Schwab is trying to reverse a dramatic slide in its earnings this year. The company earned $199 million through the first half of this year, a 54 percent drop from the same time last year. 

The slump has devastated Schwab’s stock. The company’s shares fell 15 cents Thursday to close at $12.05 on the New York Stock Exchange. The stock is down 58 percent so far this year in a plunge that has wiped out $23 billion in shareholder wealth. 

The latest reorganization will almost completely unravel a hiring spree that Schwab undertook last year as the brokerage scrambled to handle investors eager to buy stocks on the Internet. Schwab entered 2000 with 18,100 employees. 

The stock market’s steep decline over the past year has hurt brokerages across the country, but none have been slammed as hard as Schwab, said industry analyst Mark Constant of Lehman Brothers in San Francisco. 

Even as the stock market began to wilt last spring, Schwab forged ahead with its expansion, bolstered by profits that continued to rise until the bottom dropped out late last year. 

“In hindsight, they got carried away, but you can’t really blame management. For a time, there were a lot of people that thought there was free money to be made out on the Internet,” Constant said. 

Like many brokerages, Schwab helped foster the gold-rush mentality with an advertising campaign that touted the benefits of online trading. The company spent $332 million on advertising and marketing last year, more than double its $155 million budget of 1998. 

Schwab curbed its spending on advertising by 20 percent through the first half of this year. Hoping to revive its business, the brokerage recently launched a new campaign featuring its CEO, Charles R. Schwab, advising investors not to fret about the stock market’s turmoil.