Schwab Gets the Job Done

Are you still mired in the fiscal quicksand that many financial-services stocks have become? Charles Schwab (Nasdaq: SCHW) may be your way to solid ground.

The leading discount broker posted healthy fourth-quarter results this morning. Net revenue climbed 23% to $1.345 billion. Earnings from continuing operations soared 36% to $0.26 a share.

Let Citigroup (NYSE: C) slash its dividend. Let Countrywide (NYSE: CFC) go cry to a sugar daddy at Bank of America (NYSE: BAC). Discount brokers are faring well as market volatility gives investors a reason to churn, and high-yielding banking products woo burned savers at local banks.

Obviously, not every discounter is clicking its heels at the moment. E*Trade (Nasdaq: ETFC) is still paying the price for reaching too deeply into the mortgage-lending cookie jar. However, that's apparently the exception to the rule. Both Schwab and TD AMERITRADE (Nasdaq: AMTD) appear to be growing just fine, at the expense of their downtrodden competitors throughout the financial services spectrum.

Schwab is now watching over $1.4 trillion in client assets, a 17% boost over the past year. There are now 7 million brokerage accounts at Schwab, with its biggest gains coming in banking and retirement plan accounts.

Is Schwab completely invulnerable to the subprime meltdown? Not necessarily. The company originated $574 million in mortgages during the quarter. Schwab now has $3.3 billion in outstanding mortgage and home equity loans, a 44% increase year over year.

I'm not overly concerned about this. Mortgages are just a small fraction of Schwab's business, and the late push here feels more shrewd and opportunistic than troublesome. Just as Chimera Investment (NYSE: CIM) succeeded in going public recently to make vulture investments in a distressed home-loan market, Schwab's move seems prudent, since only quality loans are being approved at present.

The company is also growing its banking business at a time when consumers have been burned elsewhere. From the pathetic yields being offered at brick-and-mortar banks to the perceived risk in chasing yields at E*Trade, Schwab may appear to be at the wrong place, but it's there at the right time.

Well done, Chuck.