Citing overcapacity for processing online trading orders in light of the recent stock market sell-off, Charles Schwab & Co. Inc. yesterday announced plans for major job cuts amounting to 11 percent to 13 percent of its workforce. The bulk of the cuts will come in the second quarter of the fiscal year.
“It’s been a difficult decision,” said Charles Schwab, chairman and co-CEO at the San Francisco-based discount brokerage, in a teleconference yesterday. But according to Schwab, the markets have moved from a position of “tremendous exuberance” early last year into a “somewhat recessionary period” today.
Schwab said he doesn’t expect confidence levels to bounce back for at least another year. As a result, he added, the company now has excess capacity for handling the amount of transactions being processed by its customers.
The fact that the stock market bubble has burst may even be better for the company in the long term, one executive said. “We’ll have a much better business model without having to carry the kind of standby capacity to handle volumes that triple in a matter of a week,” said company president and co-CEO David Pottruck.
Schwab spokeswoman Jennifer Hallahan said the company won’t make final determinations as to which departments and locations will see the cuts for another 30 to 45 days.
Larry Tabb, an analyst at Needham, Mass.-based TowerGroup, said Schwab has been very heavily IT-oriented during the past three to four years. The company is now reorienting toward branches, serving high-net-worth clients and providing people with more personalized service. That doesn’t bode well for IT.
“I would say that this layoff will hit the technology group pretty hard,” Tabb said.
