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E*TRADE's October DARTs Surge 9%

Zacks Equity Research

Online brokerage firm, E*TRADE Financial Corporation (ETFC) reported a rise in its Daily Average Revenue Trades (DARTs) for Oct 2013. According to the monthly market activity report for October, E*TRADE’s DARTs were 159,703, up 9% from Sep 2013. Moreover, DARTs increased 29% on a year-over-year basis.

At the end of the reported month, E*TRADE’s total number of accounts came in at approximately 4.6 million, out of which about 3.0 million are brokerage accounts, 1.2 million are stock plan accounts and 0.4 million banking accounts.

For the said month, E*TRADE’s total brokerage accounts included 30,276 gross new brokerage accounts. Moreover, E*TRADE’s net new brokerage assets were $1.0 million, increasing from $0.7 billion in the prior month. Total brokerage accounts reflect the company’s ability to attract and retain customers who trade and invest.

As of October-end, E*TRADE’s customer security holdings were $169.2 billion, up 3.9% from the prior month. The company’s brokerage-related cash rose 1% to $38.6 billion, with customers being the net buyers of about $0.7 billion in securities. Moreover, bank-related cash and deposits stood at $6.4 billion, unchanged from the prior month.

Quarterly Performance

For the quarter ended Sep 30, 2013, DARTs increased 13% year over year to 145,000. Net new brokerage assets reported were $2.4 billion, up from $1.9 billion in the prior-year quarter. At the quarter-end, E*TRADE reported 4.6 million customer accounts, including 3.0 million brokerage accounts. However, net new brokerage accounts of 13,111 were lower than 18,247 accounts in the prior-year quarter.

Overall, credit quality was a mixed bag in the quarter. Net charge-offs declined 42% sequentially to $29 million. Provision for loan losses decreased 18.9% to $37.4 million on a sequential basis. However, allowance for loan losses inched up 1.8% sequentially to $459 million.

Performance of Other Brokerage Firms

Earlier this week, TD Ameritrade Holding Corporation (AMTD) reported an 8% rise in average client trades per day in its Activity Report for Oct 2013. Further, the U.S. trades increased 27% on a year-over-year basis.

Last week, Interactive Brokers Group, Inc.’s (IBKR) Electronic Brokerage segment witnessed a rise in brokerage metrics for Oct 2013. The segment clears and settles trade globally for both individual and institutional clients. Total customer DARTs improved 32% from Oct 2012 and 7% from Sep 2013 to 510,000. Further, total customer accounts climbed 13% from the prior-year month and 1% from the prior month to 234,000 in the reported month.

Our Viewpoint

We appreciate E*TRADE’s initiatives to reduce balance sheet risks, though these will likely put near-term pressure on net interest margin. The company’s strong capital position, rise in customer assets and improvement in DARTs are impressive as well.

Moreover, a fall in expenses reflects the company’s success at cost containment.  Further, E*TRADE’s decision to focus on core operations and exit the market making business is expected to improve profitability.

On the flip side, a challenged economy, decline in the top line and market volatility remain concerns.

E*TRADE currently carries a Zacks Rank #3 (Hold). A better performing stock in the same sector is Ladenburg Thalmann Financial Services Inc. (LTS), which has a Zacks Rank #1 (Strong Buy).

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