Schwab Assets Take an "Expected" Dip in May; SCHW, AMTD, ETFCD

| 14 June 2010

Schwab total assets took a hit in May, but the dip was due to expected withdrawals -- and there's more to come in June. Though the company added $4.7 billion in new assets the firm actually lost a total of $29.5 billion in assets "related to a mutual fund clearing services client who began a scheduled transfer of assets to an internal platform." The firm also expects to lose another $22 billion in June under the same circumstances.

The asset hit will hurt Schwab more than it might have a few years ago. In 2008, in fact, this all may have read like good news. Slowing account growth and a decline in total assets would have been offset by this huge upswing in DARTs, generating a lot of trading fees that in turn generated revenue. But there's a new normal in the brokerage industry, thanks to the broker price war, that rewards accounts and assets more than trading fees.

Schwab, in particular, cut its trading commissions by 30% in January. And in related news, the company announced today that it is reducing fees on six of its proprietary ETFs.

Now on to the charts. First we take a look at DARTs. Those DARTs increased mightily in May, jumping 17% versus April to 512,700 trades.

New account growth for the firm slowed, representing a 34% decrease in new accounts versus April. We are reserving comment on this dip at the moment. Until we know what kind of advertising spending Schwab is putting behind these numbers we can't know how much this reflects actual market performance. Marketing spending is only reported on a quarterly basis.

Total client assets dropped 7% month-over-month, as we explained earlier. If not for the loss of a clearing client, Schwab assets would have increased $4.7 billion, or just about 0.3% Given that the market indices all dropped about 8% during the same period, this represents a fairly postive relative gain for the firm. In other words, we are notsounding any alarm bells just yet -- as long as Schwab can hold on to their clearing clients, all is well.