From the CEO |
Annual Meeting of ShareholdersMay 15, 2008
It has been a very volatile year for the markets and a tough year for the economy.
Exactly one year ago this week, the S&P was at a six-year high, and the Dow Jones index set a new record in October reaching 14,093.08 on Oct. 8th.
But what a difference a year makes. It's a completely new environment, as you all know.
On March 10th, the Dow dipped below 12,000. We have oil prices at record highs. Some of our biggest institutions have been threatened by the subprime credit crisis and the dollar continues to struggle relative to other currencies.
But while market uncertainty may continue, there are positive actions underway and I believe we are now firming up the boundary lines of the financial crisis.
For example, we've seen the Fed step in to prevent the collapse of one of the country's largest investment banking firms, Bear Stearns.
The Fed has also provided targeted infusions of liquidity to help “unfreeze” the markets and in addition, the Fed has increased general liquidity by cutting the Fed Funds rate 7 times, bringing it down to today's rate of 2 percent.
We've seen the major banks and Wall Street firms recognize losses on their books and also bolster their capital base by bringing in new investors.
Congress and the White House have acted as well, providing the stimulus program – with checks arriving in people's mailboxes as we speak - and it appears that Congress will provide further help to a large group of people impacted by mortgage problems.
As for the impact of this past year's market environment on Schwab, fortunately, we have remained in a strong condition, despite the economic troubles.
Our path has been focused and consistent, and I'm confident that we've managed the company well. We plan to continue in the same way through any further ups and down in the market.
Times of market turmoil affect us all and always shake investor confidence. But just as I have always advised individual investors to remain steady and focused on the long term, I expect Schwab to remain focused throughout these ups and downs. We will remain consistent. We will remain steady.
By doing that, I am confident we will continue on the path of growth and success that we saw in 2007 and for which our company is well-known.
Speaking of success, people have asked me about Schwab's secret to success this last year.
But it's really no secret. All of us at Schwab come to work every day focused on our clients. We're here to help them to become financially fit and to reach their financial goals. That is all about empathy and guidance. Helping each of our clients to find the right approach for them. From the beginning, this firm has been the place for the individual investor.
Today, we're reaching more people than ever before and helping them navigate the financial waters and meet their needs.
I believe this is such an important time for our company. We have built the financial services firm for the 21st Century.
I'd like to mention one final thought. I've spent a good part of my career focusing on the impact we can have on people's financial well-being. And I believe improving financial literacy has never been more important than it is right now.
Through the Charles Schwab Foundation – and our alliance with Boys & Girls Club of America – our Money Matters program has reached more than 110,000 teens across the country. We also continue to improve our educational website, Schwab MoneyWise, which is all about improving financial literacy. Please visit it if you haven't.
And last, I was honored this year when the President appointed me to chair a new President's Council on Financial Literacy, a multi-year effort to promote greater understanding about banking, credit and investing among our youth, among U.S. employees, and also focusing on the needs of the millions of people who don't even have a bank account.
While I am very pleased with Schwab's 2007 results, I am particularly proud of the influence and education that Schwab can provide to improve the financial knowledge of the broader public – not just our clients, but all Americans. Back to Top
Prepared remarks by Walter W. Bettinger, IIPresident and Chief Operating Officer
The themes that stand out to me from Chuck's comments are consistency and steadiness.
That's what our senior management team focuses on ensuring – a steady organization that can grow consistently and organically.
I'd like to spend the next few minutes talking about organic growth. It certainly made news last summer when a financial analyst wrote about Schwab's “best-in-class organic growth.” But what does it mean?
The official definition of organic growth is “the rate of business expansion through increasing output and sales.” Maybe it's easier to define what organic growth does NOT include.
Occasionally we do make small, fill-in acquisitions, as we did last year with The 401(k) Company, a perfect fit for Schwab Corporate & Retirement Services.
The 401(k) Company brought expertise with large retirement plans to supplement our core strength with smaller to mid-sized plans. And In the first quarter of this year, we also added Etelligent to our Schwab Institutional business. With that acquisition, we made it easier for independent advisors to outsource some of their administrative, back-office functions.
In both cases, these acquisitions helped us build our core business for the long-term and moved us closer to our purpose of helping everyone be financially fit. Whenever that kind of opportunity comes along, we'll take the time to evaluate it carefully.
But, fundamentally, we're focused on organic growth – making the most of our existing business lines.
We'll do just that by executing well, serving our clients, encouraging them to bring more of their business to Schwab, and introducing ourselves to new clients.
Organic growth is steady. It's reliable. It's sustainable. And, over time, it has proven to be the type of growth that shareholders place the highest value on. Back to Top First and foremost, organic growth begins with an unrelenting client focus.
We know that every client has different and unique needs, but we're focusing on the common financial issues we all face at various life stages.
For example, our average client is a mid-50s Baby Boomer, who will soon face a lot of choices in the transition to retirement.
Their decisions will be different from the ones made by their parents – because the retirement landscape is different. During their career, these Baby Boomers have witnessed the creation of the IRA and 401(k) plan and the move away from traditional pensions. But how will they generate the income they need during retirement years?
Schwab has developed robust planning tools, services and solutions to help these Baby Boomers. But maybe even more important is the trust we continue to build with our clients – a level of trust and confidence that is at its highest point since we began measuring it.
For those who are still saving for retirement, we're making that easier, too. We offer complimentary investment consultations to every client – large or small with no obligation and no sales pressure.
But in reality, financial fitness is not just about retirement. It's about being financially healthy at every stage of life.
So we are also reaching out to younger investors – those aged 25 to 40 who fall into what is sometimes referred to as he “Gen X” category. They may be paying off student loans,buying their first home, or starting a family. These life decisions have huge financial implications, requiring help on both sides of their personal balance sheets.
Last year, we introduced the Schwab Bank High Yield Investor Checking, which pays a high level of interest on your checking balance and rebates all ATM fees – at any ATM worldwide.
And at the end of the first quarter, we served almost 320,000 bank accounts – more than double the number from merely one year ago. And the number of new clients who came to Schwab in the first quarter of this year grew by almost 120% compared to the same quarter in 2007.
Now, that's organic growth – fueled by our focus on clients. Back to Top Our second key is innovation. This really goes hand-in-hand with our focus on client.
In our definition, innovation is about listening to clients and then figuring out a way to offer them the services and solutions they tell us they are looking for. For example, we recently reduced account minimums and the minimum requirement for investing to just $100. And we did away with any form of account fee or charge that most companies apply to smaller account sizes. These changes made it easier for newer investors to get started toward financial fitness.
Another great example of innovative thinking came from our Schwab Institutional unit. We know that independent investment advisors are really local entrepreneurs – but Schwab brings them the resources of a national firm. Last fall, we introduced a program that provides lower group rates for health and life insurance plus payroll services and company retirement and employee incentive plans.
Schwab has a legacy of innovating on behalf of our clients – and clients have historically rewarded us for putting their interests at the forefront by bringing more of their business to us. Back to Top Our third key to organic growth is discipline.
It just makes good sense: If we are to fulfill our purpose of helping everyone be financially fit, then WE have to be financially fit as a company.
So we must have the discipline to grow expenses at a rate well below top-line revenue growth, and we must aggressively seek out opportunities for internal operating efficiency.
This line of thinking makes it possible for us to offer clients pricing value and service levels that they desire while maintaining the healthy profit margins our shareholders are counting on from us. Back to Top And that leads me to key number four… simplification.
One of the ways we constantly increase efficiency and hold down our costs is to streamline and simplify common platforms, processes and capabilities.
Schwab is a very transparent company. We are transparent in our shareholder reporting, as well as in the way we strive to serve clients.
And clients regularly ask us to help make their lives simpler by investing in our tools and capabilities.
One example of that is the Schwab.com website… a single place where investors can go to gain insight and direct access to the markets, as well as obtain detailed information on their investing and banking. In the coming months, we'll introduce an entirely rebuilt and redesigned version of Schwab.com, with major enhancements that will make it easier to manage all of your financial business at Schwab. Back to Top Our fifth and final key to organic growth makes everything else work. It's having people who are dedicated to fulfilling our purpose – people who are expert in their area and both excited as well as motivated to help us serve clients and grow the business.
Our people at Schwab are our greatest asset, and the key to our future.
We're providing them with more opportunities for training and personal development – and when we add new employees, we're putting a priority on adding more and more jobs that involve serving clients each day.
So those are our five keys to organic growth:
We believe that's a solid foundation to build on, and our 2007 and first-quarter 2008 financial results confirm our strategy is working.
Of course, this continues to be a challenging market environment. We are constantly evaluating our strategies and our assumptions to make sure we remain on track for consistent, steady, organic growth. That's how we'll remain financially fit as an organization. That's how we'll help more Americans take charge of their financial well-being. And that's how we'll continue to build shareholder value. Back to Top |
