The Schwab Economy

Here’s an interesting story. I think it’s a microcosm of the economy.
Charles Schwab (SCHW) just reported that its earnings tripled from last year. The reason for the good news is that the company has cut—slashed—its costs.
As the tech bubble deflated, shares of Schwab fell from $50 a share to just $7. Management was replaced as founder Charles Schwab returned to take over, and the brokerage firm slashed its fees by 55%. The turnaround has been remarkable. Recently, the stock has recently been as high as $16.
The company finally surpassed its peak earnings from 2000, even though it has about half the number of employees. Despite what I often hear about inflation returning, Schwab is proving that businesses can do more with half the employees at half the price. Lower costs and greater productivity can mean greater profits.

Posted by on January 18th, 2006 at 3:18 pm


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