On Wednesday,
E*TRADE Financial Corporation
(
ETFC
), an online brokerage firm, reported a decline of 5% in average
U.S. trade numbers compared with the prior month, in its Activity
Report for the month of August 2012. Moreover, the U.S. trades
dropped on a year-on-year basis. This implies that the company
witnessed insufficient trading activity during the month under
review.
For the reported month, Daily Average Revenue Trades (DARTs) were
121,570, down 37% 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 2.9 million are
brokerage accounts, 1.1 million are stock plan accounts and 0.4
million are banking accounts.
For the month, total brokerage accounts of E*TRADE included gross
new brokerage accounts of 33,303 and net new brokerage accounts of
18,034. In August, net new brokerage assets were $1.1 billion,
expanding from $0.3 billion in the prior month. Total brokerage
accounts and net new brokerage accounts symbolize the company's
ability to attract and retain customers who trade and invest.
During the month, E*TRADE's customer security holdings were $139.3
billion, up 3% from the prior month. Further, brokerage-related
cash surged 6.1% from last month to $31.4 billion, while customers
sold approximately $1.2 billion in securities. Bank-related cash
and deposits remained unchanged at $7.3 billion.
Total special delinquencies (30 to 89 days delinquent) waned 3%
from June 2012 and 6% from the prior month to $339 million in
E*TRADE's entire loan portfolio. Total delinquencies (30 to 179
days delinquent) dropped 4% from June 2012 and 6% from the prior
month to $520 million.
Quarterly Performance
As of June 30, 2012, DARTs were 139,000, down 12% sequentially. Net
new brokerage assets reported were $2.2 billion in the quarter,
falling significantly from $4.0 billion in the prior quarter.
E*TRADE's provision for loan losses declined 6.4% sequentially to
$67.3 million. Net charge-offs also plummeted 61.8% sequentially to
$120.7 million, while allowance for loan losses skidded 9.2%
sequentially to $525.8 million.
Moreover, for E*TRADE's entire loan portfolio, special mention
delinquencies dipped 7% sequentially, and total at-risk
delinquencies slumped 6% sequentially.
E*TRADE further reduced the risks related to its balance sheet. The
company's loan portfolio was $11.8 billion at the end of the
reported quarter, down by $624 million from the prior quarter,
mainly related to $503 million of paydowns.
Peer Performance
Last week, among E*TRADE's peers,
TD Ameritrade Holding Corporation
(
AMTD
) reported a 9% fall in average U.S. trades compared with the prior
month in its Activity Report for the month of August 2012.
Moreover, U.S. trades dropped 37% on a year-over-year basis. For
the month, TD Ameritrade reported $461.2 billion in total client
assets, up 15% year over year and 3% from the prior month.
Moreover, earlier this week, another peer,
Charles Schwab Corp.
(
SCHW
), released its Monthly Activity Report for August 2012. The
company recorded a decrease of 31% in DARTs from August 2011 to
375,900. Additionally, the company's DARTs slipped 5% from the
prior month.
Our Viewpoint
The competitive position of brokerage business in the market
depends on trading customers, with emphasis on active traders. As
the long-term investing customer group is less developed against
the trading customers, there is an opportunity for future growth
whenever there is an expansion in the long-term customer base.
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 of boosting its trading and investing business.
Furthermore, E*TRADE's initiatives to reduce balance sheet risk are
encouraging, although it might pressurize the near-term interest
margin. Though the company's capital position and improving
delinquency trends are the positives, volatility in global markets
remains a major concern. Moreover, lower trading activities,
fluctuating interest rates and sluggish equity markets are expected
to continuously impact the company's financials in the near term.
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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