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Schwab founder returns to rescue sinking broker

CEO David Pottruck resigned under pressure following a disappointing second quarter.

SAN FRANCISCO - Discount broker Charles Schwab Corp. dumped chief executive David Pottruck on Tuesday and replaced him with founder Charles Schwab, hoping the man who created the company can rejuvenate a business that has been sputtering for several years.

The San Francisco-based company made its surprise announcement as it released its second-quarter results. Schwab reported a 10 percent drop in its profit for the three months ended June, reversing a recent streak of improved earnings.

Investors seemed pleased with Schwab's shakeup. The company's shares gained 55 cents, or 6.6 percent, to close at $8.85 on the New York Stock Exchange. Entering Tuesday's trading session, the company's market value had plunged by 30 percent this year, a decline that may have contributed to Pottruck's ouster.

Like other brokers, Schwab's fortunes have been fluctuating with the stock market. Schwab also has been facing tougher competition from rivals such as E-Trade Financial Corp. and Ameritrade Holding Corp., which have been luring away customers by offering lower commissions.

Even as Schwab was posting a decline in its profit for the latest quarter, Ameritrade reported a 25 percent increase in its profit for the three months ended in June while E-Trade Financial reported that its quarterly profit rose nearly tenfold.

Hoping to regain market share, Schwab recently lowered its commissions by 33 percent for its average customers and reduced fees even more for wealthier investors.

Pottruck's departure comes 14 months after the company appointed him as its sole CEO. He had shared the CEO job the previous five years with Schwab, continuing a longtime partnership between the two men.

But the company's spotty performance in a volatile stock market apparently prompted the decision to give the reins back to Schwab, who had been acting as chairman, a position he will continue. The board of directors demanded Pottruck's resignation in a board meeting held Monday, according to Christopher Dodds, the company's chief financial officer.

"The last few years have been difficult in the securities markets, and I accept the board's decision that it's time for me to step aside," Pottruck said in a prepared statement.

Pottruck, 55, received a $1-million salary as CEO. Last year, he reached incentives qualifying for a $4.75-million bonus but declined to accept it so the money could be paid to other employees. The company didn't disclose Pottruck's severance package in Tuesday's announcement.

No other management changes are planned at Schwab, Dodds said during a conference call Tuesday with analysts and reporters.

In a statement, Charles Schwab indicated he thinks the company remains well positioned. "As I see the opportunities ahead for Schwab, I want to underscore my confidence in the strength of our franchise, the value we provide our clients, the dedication of our employees and the depth of our management team," he said.

Although he is 66, Charles Schwab plans to remain the company's CEO "indefinitely," Dodds said.

The company will shed more employees, resuming a purge that has shed about 10,000 jobs since the company's payroll peaked at 26,300 workers 31/2 years ago. Schwab recently cut another 275 jobs, primarily by closing a customer service center in Orlando and plans to jettison even more positions during the next five months through a combination of attrition and layoffs, Dodds said Tuesday.

The company has yet to determine how many jobs will have to be eliminated to realize management's goal to reduce annual expenses by $150-million to $200-million.

[Last modified July 20, 2004, 23:13:25]