Schwab Reaps as Individuals Sow

Traditional brokerages have been winning the stock tug-of-war with their online counterparts, as the former’s shares have surged in the last two weeks with blue chips’ rally. But a gleeful earnings preview from Charles Schwab Corp. set off a rally Monday that could help shift the momentum back to the relative upstarts.

Schwab said its first-quarter profit will exceed analysts’ estimates by as much as 30%, as trading of stocks by customers burst through previous records.

Schwab stock rose $3.94 to a record $87.94. Shares of other online securities firms also rose: E-Trade Group, the No. 3 online broker, gained $3.31 to $54.13; Ameritrade Holding, the sixth-largest, climbed $2.19 to $51.69; and Knight/Trimark Group advanced $3.69 to $58.50.

Merrill Lynch & Co., which has led the recent surge among the full-service group, also rallied, gaining $4.44 to $91.69.

Schwab said it will earn $130 million to $140 million, or 31 cents to 34 cents a share in the quarter, exceeding a 26-cents-a-share average of seven analysts polled by First Call Corp. The company earned $68 million, or 16 cents a share, in the year-earlier period.

Schwab is reaping benefits as more investors trade for themselves, rather than pay a broker for advice. Schwab processed an average of 150,900 revenue-producing trades a day in February, up 69% from a year earlier. At times, volume was more than the company’s computers could handle.

“The trend toward retail investors buying stocks and bonds over mutual funds is playing out nicely for Schwab,” said Henry McVey, an analyst at Morgan Stanley Dean Witter & Co. “I think everybody was surprised at the magnitude.”

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Brokerage Wars

Investors’ fascination with online brokerage stocks has waned in recent weeks after exploding in January. Instead, stocks of mainstream Wall Street firms have overall been bigger market gainers since Feb. 26. But Charles Schwab’s bullish advisory Monday about its first-quarter earnings spurred new interest in the rest of the online firms. A look at some key stocks in the two groups:

TRADITIONAL BROKERAGES

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52-wk. Mon. close Gain since Stock (ticker symbol) high* and change Feb. 26 Merrill Lynch (MER) $109.13 $91.69, +$4.44 +19.5% DLJ Securities (DLJ) 64.13 67.25, +3.25 +18.0 Bear Stearns (BSC) 60.94 48.94, +2.19 +14.3 Lehman Bros. (LEH) 85.00 60.44, +1.81 +14.0 Morgan Stanley (MWD) 103.19 102.00, +0.88 +12.7 PaineWebber (PWJ) 53.38 39.88, +1.06 +6.7

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DISCOUNT/ONLINE BROKERAGES

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52-wk. Mon. close Gain since Stock (ticker symbol) high* and change Feb. 26 Charles Schwab (SCH) 85.00 87.94, +3.94 +17.9 E-Trade (EGRP) 66.44 54.13, +3.31 +17.7 Ameritrade (AMTD) 67.50 51.69, +2.19 +6.0 Natl. Disc. Brok. (NDB) 47.00 26.63, +2.88 +2.9 Siebert Finl. (SIEB) 70.63 25.88, +1.13 -7.8 J.B. Oxford (JBOH) 25.75 8.56, +0.13 -14.9

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* Does not include Monday’s trading

Sources: Times research, Bloomberg News