E*TRADE's April DARTs Dip - Analyst Blog

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On Wednesday, E*TRADE Financial Corporation ( ETFC ), an online brokerage firm, released its Activity Report for the month of April 2012, recording a fall in average U.S. trades from the prior month. Moreover, the trades also dropped from the year-ago period.

For the reported month, Daily Average Revenue Trades (DARTs) were 145,769, down 7% from March 2012 and 9% year over year. The fall in DARTs largely resulted from the uncertain economic recovery and investors' reluctance to invest in the equity markets.

Broker performance is generally measured through the DARTs that represent the number of trades from which brokers can expect commissions or fees.


At the end of the month, total number of accounts came in at approximately 4.4 million, of which, about 2.8 million are brokerage accounts, 1.1 million are stock plan accounts and 0.5 million are banking accounts.

For the month, total brokerage accounts of E*TRADE included gross new brokerage accounts of 36,060 and net new brokerage accounts of 9,305. In April, net new brokerage assets were $0.4 billion, declining from $1.4 billion in the prior month. Total brokerage accounts and net new brokerage accounts are significanct of the company's ability to attract and retain trading and investing customers.

During the month, E*TRADE's customer security holdings were $138.1 billion, down 0.1% from the prior month. Further, brokerage-related cash dropped 3.5% from last month to $29.9 billion, while customers were net buyers of approximately $1.6 billion in securities. Bank-related cash and deposits dipped 3.8% to $7.7 billion in the reported month from $8.0 billion in March 2012.

Quarterly Performance

As of March 31, 2012, DARTs were 157,000, up 12% sequentially. Net new brokerage assets reported were $4.0 billion in the quarter, significantly up from $1.7 billion in the prior quarter.

E*TRADE's provision for loan losses dropped 42% sequentially to $71.9 million. Net charge-offs more than doubled to $315.6 from $120.3 million reported in the prior quarter, while allowance for loan losses also decreased 29.6% sequentially to $579.2 million.

For E*TRADE's entire loan portfolio, special mention delinquencies dipped 20% sequentially, and total at-risk delinquencies slumped 19% sequentially.

E*TRADE further reduced the risks related to its balance sheet. The company's loan portfolio was $12.4 billion at the end of the reported quarter, down by $780 million from the prior quarter, mainly related to $464 million of paydowns.

Peer Performance

Earlier this week, among E*TRADE's peers, The Charles Schwab Corporation ( SCHW ) released its Monthly Activity Report for April 2012, recording an increase of 5% in DARTs from April 2011 to 458,900. However, the company's DARTs slipped 1% from the prior month.

Last week, another peer, TD Ameritrade Holding Corporation ( AMTD ) recorded 8% year-over-year fall in DARTs for April 2012 to 368,000. Moreover, DARTs were also down 3% from the prior month. However, TD Ameritrade announced $450.9 billion of total client assets for April-end, up 7% from April 2011 and in line with March 2012.

Our Take

The competitive position of brokerage business in the market depends on trading customers, predominantly active traders. As the long-term investing customer group is less developed against the trading customers, there is an opportunity for future growth whenever the long-term customers expand.

Development of innovative ways for online trading and long-term investing products and services, delivery of advanced customer service, creative and cost-effective marketing and sales, as well as expense discipline can be considered as key factors in executing E*TRADE's strategy to boost its trading and investing business.

Furthermore, E*TRADE's initiatives to reduce balance sheet risk are encouraging, although it may add near-term pressure on the interest margin. Though the company's capital position and improving delinquency trends are positive, volatility in global markets remains a cause of concern.

E*TRADE currently retains a Zacks #3 Rank, which translates into a short-term 'Hold' rating. Considering the fundamentals, we also maintain a long-term "Neutral" recommendation on the stock.


 
TD AMERITRADE (AMTD): Free Stock Analysis Report
 
E TRADE FINL CP (ETFC): Free Stock Analysis Report
 
SCHWAB(CHAS) (SCHW): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AMTD , ETFC , SCHW

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