The board of struggling financial services firm Charles Schwab Corp. ousted chief executive David S. Pottruck yesterday and replaced him with the company's founder and namesake, Charles R. "Chuck" Schwab.
News of Pottruck's removal came as the firm announced that overall profit had dropped 10 percent, to $113 million, for the second quarter, driven largely by a 26 percent decline in revenue from customer stock trading.
Founded in 1971 as a full-service broker, it moved into discount brokerage in 1975 after the Securities and Exchange Commission outlawed fixed commissions. Schwab prospered during the 1990s stock market boom but has since been squeezed by falling volume and competition from cheap online stockbrokers. Efforts to diversify into a full-service firm through acquisitions have been only partially successful, company officials said during a press conference.
Non-trading revenue -- such as asset management fees and interest -- "hit an all-time high" in the second quarter, but "that simply was not enough to offset the decline in trading revenue," Chief Financial Officer Christopher V. Dodds said during a telephone conference call with analysts.
Pottruck, 55, had been with the firm for 20 years, serving in various posts including president and co-chief executive with Schwab, but he served as CEO for just 14 months. Before yesterday's announcement, the firm's share price had dropped more than 40 percent since October.
Schwab has laid off 10,000 people -- about 60 percent of its workforce -- since March 2001, and Dodds said he expected further layoffs. He said the firm is on track to cut between $150 million and $200 million in expenses by the end of the year.
Schwab, 66, will remain chief executive of the San Francisco firm for an indefinite period. He bucked Wall Street tradition in the 1970s by putting salespeople on salary, rather than paying them by commission, and saw sales volume explode. He sold the firm in 1983 to Bank of America but grew unhappy with the way it was being run and bought it back in 1987 for $324 million, about six times what he had been paid for it. He is the company's chairman and said he has no plans to change its direction.
"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," Schwab said in a written statement.
Pottruck had led the firm's efforts to cut costs and diversify, including the purchase of U.S. Trust Co., which caters to wealthy people, and the SoundView Technology investment banking firm.
He said in a statement: "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."
Firm spokesman Glen Mathison said investors should see little change. "Mr. Schwab's intent is to continue the firm's focus on the serious individual investor. The message to our clients is: 'We're still going to be here for you.' "
Schwab's stock price rose on the news, closing at $8.85, up 55 cents or 6.6 percent, but still well below its high in October of $14.20.