Take This Schwab and Love It

You know you're good when you can put up a profit of $1.5 billion on only $1.3 billion in net revenue. It's not David Blaine trickery, either. Charles Schwab (Nasdaq: SCHW  ) put up those monster numbers yesterday, but the puffy bottom line is the result of recording a $1.2 billion windfall after completing the sale of its U.S. Trust wealth management business to Bank of America (NYSE: BAC  ) over the summer.

Back out the one-time gravy, and Schwab still had an impressive quarter. Net revenue clocked in 21% higher than the same period a year ago. Diluted earnings per share from continuing operations surged 50% higher to $0.27, ahead of Wall Street's $0.25 profit target.

Schwab scored well all over, growing its brokerage client base as well as the number of retirement plan participants and banking customer accounts. Schwab also made the most of its newfound wealth -- both organically grown and from the U.S. Trust sale -- to repurchase shares and issue a special cash dividend to investors.

So why did the stock shed 1.4% of its value yesterday? Well, at the end of the day, Schwab is still hog-tied to market sentiment. Sure, the company has done a great job of growing its non-trading revenue. However, discount brokers like Schwab, TD AMERITRADE (Nasdaq: AMTD  ) , Siebert Financial (Nasdaq: SIEB  ) , and E*Trade (NYSE: ETFC  ) are still at the mercy of the public's appetite for stocks, bonds, and mutual funds.

Investors aren't dumb about that. A rocky trading day -- like yesterday -- may result in a flurry of trading activity, but it's not good for the industry if too many volatile days get strung together to the point of scaring away retail investors.

Either way, now is the time to hold the industry's wrist to feel the pulse. E*Trade posts its third-quarter numbers tomorrow. TD AMERITRADE follows next week. With consolidation chatter fading, the industry will have to stand on its own financial merits.

Schwab ran a great opening leg yesterday. Let's see if its peers can hold the baton in the coming days. 

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