Charles Schwab's seven million individual and institutional clients
know who to call when they have questions. Charles Schwab is
an industry giant, was one of the first to offer its services
online, and is also available by telephone, wireless devices and
via 300 offices across the U.S. The company oversees more
than 6.8 million client brokerage accounts, 535,000 corporate
retirement plan participants and 181,000 banking accounts.
And Charles Schwab Investment Management, a division of Charles
Schwab, has about $236 billion in assets under management as of
Charles (Chuck) Schwab founded his firm after the U.S. Securities
and Exchange Commission deregulated the fees that brokers charged
to trade stocks in 1974. While most brokerage houses took the
SEC's decision to outlaw fixed commissions to raise their
transaction fees, Charles Schwab decided to gain market share in
the investment world by creating a new, unconventional kind of
brokerage that made stock trading affordable for ordinary
Today, the San Francisco-based firm continues to market itself as
an everyman's brokerage house that is affordable and reliable, but
it has added some traditional brokerage services to its portfolio
along the way. Its Schwab Investor Services segment provides
retail brokerage servicesâ€"including asset management, retirement
and college savings accountsâ€"banking services, which includes
mortgages, home equity lines of credit and certificates of deposit
(CDs). The Schwab institutional segment offers trading and
support services to independent investment advisers. Charles
Schwab also had two subsidiaries, its asset management arm, U.S.
Trust, and the direct access broker CyberTrader, which offers
integrated web and software-based trading platforms.
In 1983, Bank of America bought Charles Schwab for $57 million,
only to sell it back for $280 million four years later. The
company, which had grown its customer base by one million clients
while under Bank of America's watch, subsequently went public in a
$132 million initial public offering.
From there, business Charles Schwab took off, amassing $100 billion
in client assets by 1994. In 1996, the company became one of
the first to offer its services online, finding the middle ground
between discount brokers like E*Trade and full-service companies
like Merrill Lynch. Low fees and an accessible online-trading
platform quickly made Charles Schwab one of the biggest names in
online banking at a time when everyone was rushing to stake out
real estate in the dot-com gold rush.
By 1997, Chuck's web site won the title "King of Online Brokers"
from Forbes magazine, going on to win further accolades throughout
the early dot-com years from the Gomez Internet brokerage rankings
as the best overall online broker. Within two years of
launching the Charles Schwab web site, the firm had attracted two
million online accounts, earning praise from big league
market-watchers like Worth, Fortune, and BusinessWeek, which ranked
Charles Schwab on their lists of Top Brokerages, Best Places to
Work, Most-Admired and Best-Managed Companies.
But, like almost every company that made their fortunes on the
Internet in the late 1990s, Charles Schwab took a devastating hit
when the dot-com bubble burst in 2001. From 2000 to 2004, the
company lost millions of dollars and had to downsize its employee
headcount by over 33 percent as share-trading volume tanked.
In 2000, Schwab reported operating income of $718 million. A year
later, that figure dropped to $199 million and, in 2002, Schwab's
income fell even further to $109 million. Wall Street took
note. In March 2000, Charles Schwab's shares were worth
$64.94, but by 2003, they were listed at $6.56, never to recover
their pre-dot-com strength.
The company needed a plan to stem Charles Schwab's financial
bleeding. David Pottruck, a 20-year Schwab veteran who had
taken the reigns as chief executive 2002 after sharing that job for
five years with "Chuck," implemented an aggressive turnaround
strategy. It began by instituting higher trading fees,
abandoning the signature "average Joe" discounts that made Charles
Schwab a household name. Then, in an effort to attract
higher-end customers, Pottruck looked to expand Charles Schwab's
service offerings through a series of acquisitions. In 2000,
Charles Schwab bought New York-based U.S. Trust, a money management
firm that provided investment management, private banking, and
trust services, as well as tax, estate and financial planning for
white-collar clients across the country. Then in 2003, U.S.
Trust paid $365 million to acquire State Street Corporation's
private asset management group, whose client base hailed from the
upper crust of New England's elite.
Along with his acquisition strategy, Pottruck's plan included
shedding Charles Schwab of its European operations and its 50
percent stake in Glasgow-based stockbroker Aitken Campbell, which
closed its doors in 2005. Pottruck also oversaw the founding
of the Charles Schwab Bank in spring 2003.
Charles Schwab's board was none too happy with the changes, which
did little to brighten the company's prospects. The new
ventures were operational failures and were a drain on the
company's resources. Pottruck knew that his unsuccessful plan
put his job at risk and, sure enough, in July 2004, the company's
board of directors showed him the door. In his stead, the
board reinstituted Chuck Schwab as chief executive.
Back at the helm of his namesake company, Chuck brought Charles
Schwab back to basics. On Pottruck's watch, the company had
steadily lost clients to lowâ€"commission online brokers like
E*Trade and Ameritrade, a market that Charles Schwab once
dominated. Schwab looked to shed those businesses that
weren't profitable and to reenter the discount brokerage
world. He began by offering steep trading discounts and
cutting overhead costs. As part of that plan, the company
sold SoundView Capital Markets for $265 million to UBS in 2004,
less than a year after buying it for $340 million.