Charles Schwab’s share price keeps on sliding amid fears that the firm will not hit Q2 estimates.
Despite being something of a model for the next generation of investors, online broker Charles Schwab is still suffering. In Europe, the company has enhanced its product offering by branching out into Self-Invested Personal Pensions (SIPS) and a promising bond offering. Behind the scenes it has dovetailed its US model by integrating into market making with an alliance with TD Waterhouse. However, no amount of ‘skinny branch networks’ brand value and next generation products will get investors in the ring when they know that one swipe of the bear’s paw will knock them flat out.
Both Schwab’s American and European businesses are running high losses, which as much as anything calls into question the validity of the ‘second generation’ of investors. The ‘second generation’ is the industry buzzword for new risk-averse converts to online trading. This segment was supposed to save online brokers from the pain of a bear market. These investors look for good (if not outstanding) long-term returns to supplement dwindling state pensions. But would-be investors need a lot of advice for this; Schwab has dragged its feet on the issue of how to deliver it. It has been weighing up the consequences of entering the IFA market itself or extending relationships with existing IFA’s.
But does all this matter? Quite simply, online stocktrading is bound to be a boom-bust market. The history of markets from tulips, to real estate, to junk bonds, to gold to the Internet is a history marked by periods of absurd speculation followed by severe recrimination. When the bottom falls out, a lot of people move to the sidelines and nurse their burnt fingers. Unsurprisingly, that is just what they are doing now. The ‘next generation’ is really a symbolic solution to paste over the cracks of a bear market and the fact that brokers depend on commission payments. In the meantime, the best thing Schwab can do is read its history books and wait for another bull market.
