It turns out that Charles Schwab (NASDAQ: SCHW) and TDAmeritrade (NASDAQ: AMTD) may have sold auction-rate securities by using misleading marketing about whether or not the instruments were "cash equivalents." According to The New York Times, the "point of sale" activity at the discount and retail brokerages is similar, they said, and some of the discount brokerage firms use financial advisers or may have improperly listed information on their websites.
Schwab argues that it was only an "agent" and did not slant the marketing of auction-rates one way or the other.
It is safe to predict that Andrew Cuomo, the New York State Attorney General, will get discount brokerage firms to buy the auction-rate paper back from their customers. Cuomo can probably find some marketing material where the nature of the securities was represented the wrong way.
But, Cuomo's actions have stepped over the line. In all probability, many discount brokerage customers bought the auction-rates on their PC without seeing any information about whether their liquidity could be undermined. Discount brokerage customer often do their own research.
Cuomo won't care. He won't try to find out which people got their auction-rates without being attracted to them by marketing. He will get the discount firms to buy all of the paper back. The companies do not want years of litigation.
Cuomo is running for governor, or perhaps the U.S. Senate. He does not have time to pause for such details.
Douglas A. McIntyre is an editor at 247wallst.com.
Charles Schwab Corporation (NASDAQ: SCHW) is a leading provider of financial services, with more than 300 offices, 7.3 million client brokerage accounts, 1.3 million corporate retirement plan participants, 355,000 banking accounts, and $1.4 trillion in client assets. The company provides a full range of securities brokerage, money management and financial advisory services to individual investors and independent investment advisors. The Charles Schwab Bank provides banking and mortgage services. President and COO Walter Bettinger took the CEO reins from founder Charles Schwab this week. Schwab remains executive chairman.
Last week, the company presented its Q2 report. Earnings of 27 cents per share and revenues of $1.31 billion topped Street estimates 26 cents per share and $1.30 billion. Clients brought $26 billion in net new assets to the firm. Active brokerage accounts and retirement plan participants were up 5% and 13% from year-earlier levels and banking accounts more than doubled.
Talk about an interesting day for E*Trade (NASDAQ: ETFC). The broker, a competitor of TD Ameritrade (NASDAQ: AMTD) and Charles Schwab (NASDAQ: SCHW), reported Q2 earnings on Tuesday after the market closed. E*Trade saw its stock close up on the day by almost 11% on better-than-average volume ahead of the press release. Then, after hours, the stock was down over 15% as investors digested the data. It was a wild ride indeed, and I'm glad I wasn't on it.
E*Trade saw its total net revenue decrease by 20% to around $532 million. The loss per share came in at 19 cents. According to this Reuters article, Wall Street was hoping the loss would only be 14 cents per share.
E*Trade isn't out of the woods yet, and I think it'll be a while before it fully turns itself around and recovers from the financial crisis it's been suffering. In fact, the release mentioned how the broker lost value on investments in preferred equities of Federal National Mortgage Association (NYSE: FNM) and Federal Home Loan Mortgage (NYSE: FRE) in July and that the liquidation of the investments will impact the third quarter. Yeah, I'm sure shareholders of E*Trade love to hear the names Fannie Mae and Freddie Mac thrown around in the earnings report. They're sure to warm the heart.
At one time, I thought E*Trade was worth entering, and it obviously might have been worth trading ahead of the earnings (if you were quick to get out before the after-hours, that is). Now, however, I'm reticent to put any new money to work in the financial sector. It's going to be a while before the financial malaise finally lifts. Since E*Trade is still losing a lot of money and missing estimates, I see no reason to allocate any investment funds here. The stock has become too speculative, and if you want to speculate, I'm sure you can find safer sectors to place some bets.
Disclosure: I don't own any company mentioned; positions can change at any time.
Yesterday's Major League All-Star Game went into extra innings (15 total) before the American League won 4 to 3, earning the home field advantage when the World Series rolls around in October. Yesterday was also the day I called the bottom of our economic woes (see Will Bush throw a change-up at Yankee Stadium?).
Calling the bottom should not be confused with the end of the pain. It could get worse but I see signs of the turn, and today the market, for the moment, is up. Oil prices are down, as I write, to $132 per barrel and I do not think we will be seeing $200 oil any time soon, as some have opined.
Today's Wells Fargo (NYSE: WFC) earnings report set things off in the right direction. Wells Fargo: Beating expectations by my colleague Steven Halpern will give you the details, but the highlights are lower earnings, a 10% increase in the dividend yield, and a tolerable and understandable charge for bad loans and to increase reserves.
If Bush's change-up marks the bottom, then WFC is the slugger that hit the ball back over the fence. Can one report from one bank make a difference? Yes it can, if people read it as a sign of things to come. At the same time, the capitulation I describe in IndyMac (IMB) turns to dust is another sign that we may be at the turning point.
There are many ironies in the fact that President George W. Bush will throw the first pitch at Major League Baseball's All-Star Game in New York. For one, President Bush is the first managing general partner of a Major League team (the Texas Rangers) to become President of the United States.
President Franklin Roosevelt was the first to attend an All-Star Game and throw out the first pitch, starting the tradition. He too had to deal with a poor economy and by the time he threw out that first ball the groundwork was being laid for World War II. President Bush has had to contend with his own war.
While there are differing views as to whether we should have gone into Iraq and whether we should stay or get out, this will always be viewed as George's war, fair or not. And the state of our economy in 2008 will also be viewed as George's economy, fair or not.
The ultimate irony for me is that Yankee Stadium is scheduled to be torn apart at the end of the season. This is YANKEE Stadium and the last president to set foot in it will be George W. Bush. The stadium with the greatest heritage in baseball, the 'House That Ruth Built', is going to be torn apart while our economy is also being torn apart. It is being torn out at its roots.
This post is part of my series featuring established companies and the smaller, more aggressive or innovative rivals that may eventually succeed them.
The expression was good for decades: "Wall Street to Main Street," as Merrill Lynch (NYSE: MER) was indeed the nation's premier brokerage firm to individual investors. That mantle is in serious jeopardy as "Mother Merrill" has encountered a horrible period in its illustrious history. Many wonder if Merrill Lynch will be able to survive as an independent company or be acquired by a larger bank.
Merrill Lynch replaced inept CEO Stanley O'Neal back in October 2007 "after one bad quarter." One rule of investing is there is rarely just one bad quarter for a troubled company and Merrill is proving this. The company actually lost over $10 in earnings per share in 2007, and 2008 will be lucky to break even. The subprime mortgage and other riskier credit strategies have been the undoing of Merrill Lynch.
Coming up fast and preparing to take the title of "Main Street's firm" for individual investors is Charles Schwab (NASDAQ: SCHW). This San Francisco-based firm has stayed true to its business model since its founding in 1971 by Charles Schwab. He firmly believed then and still does, that investors need choices and a low price of execution. Schwab offers several investment products primarily to individual investors and small institutions. The firm has migrated these past 10 years to an outstanding web-based model, allowing investors to access their account information 24/7. Transaction costs are among the lowest and advice is available. The advice is not pressure-packed, but rather informative.
Charles Schwab (NASDAQ: SCHW) shares are trading higher after the company reported that average daily trading volume rose 15 percent last month, compared to May of 2007. Client assets rose 6 percent to $1.47 trillion in May from $1.39 trillion last May. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on SCHW.
After hitting a one-year low of $17.41 in August, the stock hit a one-year high of $25.72 in December. SCHW opened this morning at $21.65. So far today the stock has hit a low of $21.42 and a high of $22.11. As of 1:20, SCHW is trading at $21.99, up 64 cents (3.0%). The chart for SCHW looks bullish and deteriorating slightly, while S&P gives the stock a bullish 4 Stars (out of 5) Buy rating.
For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $17.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in just three months as long as SCHW is above $17.50 at September expiration. Schwab would have to fall by more than 20% before we would start to lose money. Learn more about this type of trade here.
SCHW hasn't been below $17.40 at all in the past year and has shown support around $21 recently. This trade could be risky if the company's earnings (due out in late July) disappoint, but even if that happens, that position could be protected by support the stock might find just above $18, where it bottomed out in the March and April. Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in SCHW.
TD Ameritrade Holding Corporation (NASDAQ: AMTD) reported earnings for its second fiscal quarter yesterday, and they were pretty decent for the most part -- some might have thought that investors were completely shunning the market because of all the volatility going on, but TD Ameritrade's results show that a broker can still make money in such a challenging climate.
Even so, overall revenues declined 3% to $623 million. While transaction-based revenues also declined, it should be noted that average client trades per day did increase 23% to 312,000. That's an important measure when talking about brokers such as TD Ameritrade, or competitors such as E TRADE Financial Corporation (NASDAQ: ETFC) and The Charles Schwab Corporation (NASDAQ: SCHW). Earnings per share really shined, rising 35% to $0.31 per diluted share.
TD Ameritrade is sticking to its earnings guidance of a "midpoint forecast of $1.32." Of course, I'd like to see raised guidance, but a reaffirmation is certainly better than a reduction in guidance. Besides, I have to go back to the challenging climate concern -- if TD is happy to keep the forecast right now, then this is definitely positive. Investors would probably do well to at least investigate the brokers. When the economy snaps back, they should rally higher from these levels. TD Ameritrade, while not right up against a 52-week high, actually isn't that far from it, interestingly enough.
Disclosure: I don't own shares in any of the companies mentioned here; positions can change at any time.
U.S. futures are up this morning, buoyed by upbeat news from technology bellwether Intel (NASDAQ: INTC). After the close Tuesday, the world's largest semiconductor company announced higher-than-expected first-quarter revenue of $9.7 billion, up 9% from a year ago. Intel Chief Financial Officer Stacy Smith said the company saw sales increase in all geographic regions, including the United States and Europe.
This morning, JPMorgan Chase & Co (NYSE: JPM) also reported better-than-expected figures. The third largest U.S. bank said Q1 profit fell to $2.37 billion, or 68 cents per share, from $4.79 billion, or $1.34 per share, a year ago. Analysts had expected 64 cents per share.
Stocks closed slightly higher yesterday after a day of mixed economic data and earnings, including the best quarter ever from Schwab (NASDAQ: SCHW), better-than expected-earnings from Johnson & Johnson (NYSE: JNJ), but losses of more than $1 billion from Washington Mutual Inc. (NYSE: WM).The Dow industrials rose 60 points, or 0.49%, the Nasdaq Composite was up 10 points, or 0.45%, and the S&P 500 gained 6 points, or 0.46%.
After the close yesterday, transportation company CSX Corp. (NYSE: CSX) reported soaring first-quarter profit, with a 63% improvement in earnings per share over last year.
Economic data today includes: March consumer price index and housing starts at 8:30 a.m. EST; crude inventories for the week of April 12 are due in at 10:30 a.m.; and the Fed's Beige Book will be released at 2:00 p.m.
In addition to JP Morgan Chase, earnings are due in today from Coca-Cola, Wells Fargo and, after the close, eBay and IBM.
Charles Schwab Corp. (NASDAQ: SCHW) shares are trading higher after the company reported a first-quarter profit of $305 million, or 26 cents per share, in line with analysts' estimates. SCHW benefited from 246,000 new brokerage accounts during the quarter, 27 percent higher than the year-ago period. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on SCHW.
After hitting a one-year low of $17.41 in August, the stock hit a one-year high of $25.72 in December. SCHW opened this morning at $18.73. So far today the stock has hit a low of $18.72 and a high of $19.46. As of 1:45, SCHW is trading at $19.49, up $1.19 (6.5%). The chart for SCHW looks bullish but improving, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $15 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 16.3% return in just five months as long as SCHW is above $15 at September expiration. Schwab would have to fall by more than 22% before we would start to lose money. Learn more about this type of trade here.
JP Morgan Chase (NYSE: JPM) shares are trading higher after acquisition target Bear Stearns (NYSE: BSC) posted a profit of $110 million, or 86 cents per share, just below analyst projections of 87 cents per share. The results show that BSC was able to make profits during the ongoing credit crisis. Other financial stocks also reporting good news this morning include M&T Bank (NYSE: MTB) and Schwab (NASDAQ: SCHW). This could be a good sign for JPM, which reports earnings tomorrow. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on JPM.
After hitting a one-year high of $53.25 in May, the stock hit a one-year low of $36.01 in March. JPM opened this morning at $42.18. So far today the stock has hit a low of $41.28 and a high of $42.70. As of 12:10, JPM is trading at $41.91, up $0.41 (1.0%). The chart for JPM looks neutral but deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $35 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in just one month as long as JPM is above $35 at May expiration. JPMorgan would have to fall by more than 16% before we would start to lose money. Learn more about this type of trade here.
According toMarketWatch, Moody's affirmed its A1 rating on the senior long-term debt at Lehman Brothers (NYSE:LEH) but cut its rating on the brokerage. The financial website also reports that Goldman Sachs upped ConocoPhillips (NYSE:COP) from "neutral" to "buy."
Friedman Billings downgraded Charles Schwab (NASDAQ:SCHW) to "underperform" from "market perform," according to Briefing.com. The news service also reports that UBS downgraded Goldman Sachs (NYSE:GS) from "buy" to "neutral."
Douglas A. McIntyre is an editor at 247wallst.com.
Investors will want to read the brief interview with Charles Schwab Corporation (NASDAQ: SCHW) CFO Joseph Martinetto in the March issue of CFO Magazine. Thanks in large measure to Joseph Martinetto and his predecessor, Schwab has not been battered much by the subprime mortgage mess. Despite being chided in The Wall Street Journal (subscription required) and other financial newspapers, Schwab passed on investing in subprime products. It is refreshing to read about a CFO who states up front that subprime products do not meet the risk/return profile Schwab needs in order to act on behalf of their clients, therefore Schwab has no intention of investing regardless of public mockery. Who's laughing now?
For FY 2007, Schwab stock price is up 32%, income from continuing operations in up 26%, and total client assets under management are up 17% to $1.4 trillion. A measurable chunk of those increases comes from new client business from investors burned by other financial services companies that seem to have forgotten how to price risk appropriately. Martinetto states that Schwab processes about $1 billion in securitites transactions daily, so there is enough operating risk in the business without seeking out additional financial risk. According to Martinetto, the US economy is in for another 4-6 quarters of uncertainty due to the fallout from the housing market slump and credit crunch. Schwab stock currently trades under $19 and may provide a suitable investment for more conservative investors seeking a measure of stability.
Yesterday's Major League All-Star Game went into extra innings (15 total) before the American League won 4 to 3, earning the home field advantage when the World Series rolls around in October. Yesterday was also the day I called the bottom of our economic woes (see 
There are many ironies in the fact that President George W. Bush will throw the first pitch at Major League Baseball's All-Star Game in New York. For one, President Bush is the first managing general partner of a Major League team (the Texas Rangers) to become President of the United States.
This post is part of 
Here are some highlights from this past week's 
U.S. futures are up this morning, buoyed by upbeat news from technology bellwether 
Does GM deserve a taxpayer bailout?
Boeing could lose $3.5 billion per month if machinists strike
Cramer on BloggingStocks: Dell loses its Street cred once again 
