Charles Schwab’s Ambitious Overseas Expansion Hits Snag Discount Brokerage Blames Protectionist Environment For Delays

Charles Schwab Corp., which has been enormously popular with American investors seeking discounted broker-dealer services, wants to duplicate its success in Europe.

But two years after opening its first non-U.S. branch in London, the San Francisco securities firm is finding the going tougher than expected.

After setting up a London office in February 1993, Schwab announced ambitious plans. The company wanted to place branches in Paris and Frankfurt in 1994, apply for membership on the London Stock Exchange and begin trading foreign securities by 1995.

Those lofty goals have neither been abandoned nor met.

Schwab officials say a protectionist regulatory environment in Europe, crossborder trading rules and varying local ordinances, as well as the domination of the European securities business by the banking industry, have all made for challenging conditions abroad.

“I think we’re laying the groundwork for future expansion,” Schwab spokesman Tom Taggart said. “But we have no immediate plans” to gain membership on the London Stock Exchange, and “there are no plans right now to establish other physical locations.”

For now, Schwab remains a registered brokerage firm with the Securities and Futures Authority, a United Kingdom regulatory body that is the equivalent of the U.S. Securities and Exchange Commission.

By belonging to SFA, however, and not to the London exchange, Schwab can only sell dollar-denominated securities to its clientele abroad, which includes U.S. expatriates and foreign nationals.

Nevertheless, Schwab officials say they are content with the current pace.

“We have our plate full in developing the business here in London,” says Neil Stapley, managing director of Charles Schwab Ltd.

But if Schwab wants to effectively compete in Europe, observers said, the firm will have to overcome a weakened financial environment and get aggressive about securing its membership on the London Stock Exchange.

When and if Schwab does gain membership there, “we’ll move into a totally different ball game, a totally different gear,” Stapley said.

“We will be putting ourselves up alongside local brokers in the U.K. and offering additional products which will appeal to a much broader audience.”