Schwab, E*Trade: Monthly Activity Comparison and the Industry Average

Yesterday, May 14, 2008, both E*Trade (ETFC) and Charles Schwab (SCHW) released monthly activity reports for April. TD Ameritrade (AMTD) a third strong player in online brokerage services did not report any information.

On Wednesday afternoon, Steven Bertoni from Reuters reported on comments from analyst Richard Repetto of Sandler O’Neill and Partners regarding E*Trade and Schwab. Bertoni’s article points out that “Sandler O’Neill and Partners” predicted an industry wide “Daily Average Revenue Trading” [DART] decline of 2.5 to 7.5 percent in comparison to March trading volume. Schwab’s April DART decline of 7 percent was on the high side of this predicted decline range. E*Trade, on the other hand, experienced only a 1.6 percent decline, which was significantly lower than the low of 2.5 percent predicted by Sandler O’Neill, and also significantly “less than the industry average, which fell 2.4 percent.”

Bertoni also quoted Repetto as stating that E*Trade

....brought in more new trading accounts than analysts had expected . . . Excluding the sale of a business, they brought in roughly 18,000 new accounts—well above the 6,000 or so they brought in last month.

In E*Trade’s monthly activity report, Donald H. Layton, Chairman and Chief Executive Officer, points out that the

...completed sale of Retirement Advisors of America [RAA] . . . represents the first in a series of planned non-core subsidiary sales related to the Company’s 2008 Turnaround Plan . . . for monetizing non-core assets . . . and effectively managing our balance sheet.

Layton finishes by stating:

I am pleased with our progress which has led to further stability and strength in our core retail business, especially considering another month of growth in our target segment accounts. We look forward to announcing additional points of success in the near future. [emphasis mine]

In addition to Schwab’s monthly activity report, Schwab released survey results entitled “Schwab Study Finds Active Traders Are Optimistic About the Market Despite Recent Volatility.” This report presents details of the “Charles Schwab Active Trader Sentiment Survey designed to take the pulse of nearly 500 individual investors.” Interestingly, “76 percent expect the S&P 500 to rise or trade sideways in the next six months;” 80 percent of respondents “intend to maintain or increase the number of trades they make in the next six months;” and “half of the respondents view volatility as an opportunity in the marketplace.”

In summary, both E*Trade and Schwab metrics indicate the strength of online brokerage services with an active and growing client base that has a positive trading outlook. With interest rates on savings accounts at an all time low, these three elements will be a formula for online brokerages to have sustainable success for 2008.

Disclosure: Long ETFC and VPRT

Comments

[lucky lenny:]

Great analysis & it shows why E-trade should be an acquisition target in the next months.

2008 May 15 06:26 AM

[manohmanoh:]

I'm not disputing your conclusion, but it is entertaining to see a reporter reporting on a reporter reporting on an analyst commenting on a company.

2008 May 15 07:20 AM

[Educated In...:]

An Analyst has finally spoken positive about E-Trades progress over the past 2 months.

2008 May 15 09:08 AM

[Educated In...:]

I had to work hard to find the analyst article from reuters. Couldn't even find it with a search on reuters.com for SCHW or ETFC. Finally found a link in AOL Finance, so since I had to work so hard here it is for anyone else that wants to verify

today.reuters.com/news...

2008 May 15 10:38 AM

[Ermilo:]

Thanks for the link CFO investor....keep the little guys informed!!!

2008 May 15 12:03 PM

[rl:]

forget about etfc returning to the upper twenty dollar range, how soon do you think etfc will take over schw's dominance? this article indicates that there are 2 very distinctive trader style in the 2 companies' clients and schw's clients don't nearly trade as much as etfc's. not to mention schw has how much more clients compares to etfc.....

2008 May 15 12:17 PM

[Urbane Gori...:]

I can only tell you that I left Etrade because their staff are incompetent. I can't imagine anyone buying this company - or for that matter banking there... Thx jegan

2008 May 15 03:22 PM

[alexi:]

rl, the problem with your statement is that Schwab trading volume fell 8 percent in April as opposed to only 1.6 percent for Etrade. Are you saying that Schwab trade style is to trade much less specifically in the month of April? Sorry, but this makes no sense.

2008 May 15 05:45 PM

[Gary McCamey:]

I've been an E-trade member for many years, and the most money I"ve made in one year is a bit over $100,000. Now I"m a small trader and always have been. I've stuck by E-Trade through this whole thing and I'll make another $100,000. thanks to those guys shouting, "The sky is falling, the sky is falling". Thanks! I'm a guy who never made over $28,000. in a year in his working life. I only became rich when I retired, AND, when I became a member of E-Trade. To the working staff of E-Trade, ignore the guy who says ya'll are incompetent, surely he's only trying to discourage investors until he can buy more shares. I appreciate each of you and the many times ya'll have bought shares for me cheaper then I had bid to pay. The real people appreciate ya'll. God bless you all, Gary.

2008 May 15 07:11 PM

[rl:]

alexi,

all i'm saying is that by percentage, more of etfc's customer is activly trading where the schwab clients are reluctant to invest actively. april just happen to be a month that magnifies the differences and i'm thinking etfc would certainly profit better if it does have a more profitable client base. etfc has attracted active traders where as schwab has many clients who buys mutual funds.

2008 May 16 11:34 AM

[Bambleweeny57:]

Question For Cindy

A new member of the Yahoo! ETC message board, named savyinvestor11, has recently appeared openly purporting to be you.
Is this correct?
If not, you may be interested to see what your impersonator is saying.

2008 May 21 03:10 PM

[jbmaria:]

going to post this on Cindy's boards as many asked me for more detailed reasons for my caution:


Jimmy Goodwin
May 23 02:36 PM
Up to now I've been against the vocal bulls of this E*Trade movement, but I must admit Cindy has finally come with some solid facts and logic here. "
*******
Ok,Jimmy,why don't you enumerate the "solid facts" that impress you so much. What I see is mostly wishful thinking and alleged progress toward targets.

Numbersssss is "wishing" for this to occur:

"So WHEN is the magic moment? Generally, it's when:

A) the company reports a profit after losses, or

B) the company's cash flows have improved so much that it finally can use its internal cash to pay down debt and/or buy back stocks, or

C) the company's analysts support business actions and trends with positive commentary.

If both A), B), and C) -- it's the most powerful combination in the marketplace."

*******
Well hell,if ETFC hits this trifecta,I get bullish too.
But where's the evidence any of this will occur?


Profits and massively improved cash flows in Q2???

As I see it,there's no guarantee that last Q's noted improvement in the loan portfolio won't reverse.Macro trends in housing and incomes don't indicate to me any clear improvement in the mortgage holders lot,delinquencies and defaults continue to trend upward.And the Fed may be out of bullets.I don't know how bad it might be or become but ETFC has around $40 Billion in loans that could get in some degree of trouble.
SA author,R. Middleton has written a comprehensive series on the crisis and other articles I highly recommend,read everything he offers if you want to temper your outlook with some intelligent caution:

seekingalpha.com/artic...


Some other cited issues are asset sales,like the Indian deal just announced. OK,they get the $145m but they lose the rev. and profit going forward and this from a co. that recently was selling themselves as an international player.

Further,they will be paying over $50 million per Q interest to Citadel ,a nasty drag on potential profits.

Exiting the mortgage origination biz. Sounds good given the aura surrounding mortgages but recall this was once probably their biggest moneymaker,now gone for the conceivable future.And let's not forget it's expensive to exit a biz line,severance packages and all that.

Debt for equity swaps. Yes,they take debt off the books,a good thing but they are dilutive to shareholders.
And speaking of dilution,keep in mind the recent authorization of 600 million shares by management.
Those pumping ETFC would have you believe that mgt. just ran out of authorized shares for routine corporate purposes like ESOPs and debt for equity swaps.Maybe, but did they need to double the existing 600 million shares,seems like they have something in mind that a more modest 1-200 million shares might not cover.
Curious!

At the same time,Citadel registers for "potential" sale over 90 million shares it got for lending ETFC $1.9 Billion at 12.5 % last November. It also registers this debt for "potential' sale at the same time as the share authorization. Curious!

I'm not going to pretend I know what either ETFC or Citadel is up to but unlike the pumpers I won't assume it's purely coincidental and /or innocent toward shareholders.
If nothing else it adds a huge dose of uncertainty to the equation and we know how uncertainty is treated by Wall Street.


I have more concerns but for now I think you can see my caution on ETFC as an investment is quite logical.

2008 May 23 06:57 PM

[dig4gem:]

What is JBMARIA's agenda???

Not only that s/he writes 24/7 negatively on E*Trade in such venues like Yahoo ETFC message board, but strangely positively on E*Trade's competitors on the discussion boards of E*Trade, even positively on the Schwab fund that a lot of their investors are now alleging being misled and suffer substantial losses, yet JBMARIA also claims that s/he HOLDs E*Trade shares!

So JBMARIA,

Do you mislead message/blog boards when you say you "hold" ETFC?

Do you actually short ETFC?

Do you hold SCHW or any of E*Trade competitors' stocks?

Do you work, or in the loose sense of the word "work", for one or more competitor(s) of E*Trade and manufacture all your negative posts for some hidden agenda, like an attempt for E*Trade's competitor to acquire E*Trade on the cheap?

2008 May 23 09:02 PM

[jbmaria:]

Jimmy Goodwin
May 23 02:36 PM
Up to now I've been against the vocal bulls of this E*Trade movement, but I must admit Cindy has finally come with some solid facts and logic here. "
*******
Ok,Jimmy,why don't you enumerate the "solid facts" that impress you so much. What I see is mostly wishful thinking and alleged progress toward targets.

Numbersssss is "wishing" for this to occur:

"So WHEN is the magic moment? Generally, it's when:

A) the company reports a profit after losses, or

B) the company's cash flows have improved so much that it finally can use its internal cash to pay down debt and/or buy back stocks, or

C) the company's analysts support business actions and trends with positive commentary.

If both A), B), and C) -- it's the most powerful combination in the marketplace."

*******
Well hell,if ETFC hits this trifecta,I get bullish too.
But where's the evidence any of this will occur?


Profits and massively improved cash flows in Q2???

As I see it,there's no guarantee that last Q's noted improvement in the loan portfolio won't reverse.Macro trends in housing and incomes don't indicate to me any clear improvement in the mortgage holders lot,delinquencies and defaults continue to trend upward.And the Fed may be out of bullets.I don't know how bad it might be or become but ETFC has around $40 Billion in loans that could get in some degree of trouble.
SA author,R. Middleton has written a comprehensive series on the crisis and other articles I highly recommend,read everything he offers if you want to temper your outlook with some intelligent caution:

seekingalpha.com/artic...


Some other cited issues are asset sales,like the Indian deal just announced. OK,they get the $145m but they lose the rev. and profit going forward and this from a co. that recently was selling themselves as an international player.

Further,they will be paying over $50 million per Q interest to Citadel ,a nasty drag on potential profits.

Exiting the mortgage origination biz. Sounds good given the aura surrounding mortgages but recall this was once probably their biggest moneymaker,now gone for the conceivable future.And let's not forget it's expensive to exit a biz line,severance packages and all that.

Debt for equity swaps. Yes,they take debt off the books,a good thing but they are dilutive to shareholders.
And speaking of dilution,keep in mind the recent authorization of 600 million shares by management.
Those pumping ETFC would have you believe that mgt. just ran out of authorized shares for routine corporate purposes like ESOPs and debt for equity swaps.Maybe, but did they need to double the existing 600 million shares,seems like they have something in mind that a more modest 1-200 million shares might not cover.
Curious!

At the same time,Citadel registers for "potential" sale over 90 million shares it got for lending ETFC $1.9 Billion at 12.5 % last November. It also registers this debt for "potential' sale at the same time as the share authorization. Curious!

I'm not going to pretend I know what either ETFC or Citadel is up to but unlike the pumpers I won't assume it's purely coincidental and /or innocent toward shareholders.
If nothing else it adds a huge dose of uncertainty to the equation and we know how uncertainty is treated by Wall Street.


I have more concerns but for now I think you can see my caution on ETFC as an investment is quite logical.

2008 May 23 09:08 PM

[The Real Ex...:]

Charles Schwab? You can't get more clueless than a discount broker and Liz Sonders is a clown.

People let me cue you in on something about Schwab. Early in 2008, I contacted Schwab and offered to speak at one of their active trader meetings (for free) at the upcoming event (which was 3 days before Bear Stearns was bailed out).

I wanted to help people because I was one of only a few of the people in the world who predicted all that we see today and wrote about it in a book a few years back.

I knew that the media was not really telling people what was going on in the banking collapse and felt that the most important thing would be to provide some guidance and risk considerations to these Schwab clients (since I knew they were 100% lost).

When I went to this event to meet up with key contacts, I was shocked to see that the event consisted of mostly elderly people and the seminars were beginner level - they were teaching the elderly the basics of technical analysis and other things. I was shocked! I wondered, WTF is Schwab doing suckering in desperate elderly people into the most dangerous period of the market now?

Surely they would be having an expert speaker to discuss the current banking crisis, wouldn't they? Not at all. The whole day it was ignored as if it did not exist. They had some guy from one of the lame duck shows on CNBC speak during lunch. And although many in the audience had specific investment questions regarding oil, banks, Bear Stearns, real estate, gold and so on, this fellow was unable to give any decent advice - reason? Because he was clueless. He is on CNBC - what do you expect? Those who appear regularly on TV have no clue what is going on. They are marketers and entertainers.

After following up with Schwab officials the following week, I was sent to some kid who was in charge of these events. He did not bother to even call me...he emailed me with the response..."sorry but we have speakers booked through 2009."

Of course what I was offering (for free once again) was to help guide investors through the current banking and real estate mess NOW, not after 2009. All of this proved to me that Schwab is a complete joke, and no better than the other discount brokers, which are much much worse than the REAL Wall Street brokers.

My advice? Stay far away from Schwab. They are very dangerous because they try to position themselves as advice providers when they are complete idiots. All you have to do to confirm this is call one of their reps and ask for market guidance. They will read off the list of BS they have been told to push "stay invested, think long term, diversify." Wow real valuable. But do not dare ask about options unless you are ready to assume the risk of getting wrong information as I have.

I'd stick with e-trade. At least they don't pretend to offer expert advice and fail to deliver. Always stay away from deceptive people/companies and Schwab is as deceptive as they come in my opinion.

2008 May 27 05:46 PM

[jbmaria:]

Readers should know that Cindy Reed is abusing the process.

SA was set up to provide a voice for those without a platform for their views to make themselves heard.It's a good idea and I've read a lot of great articles on this site.

SA was not set up for people to shill their investments although I suppose every good idea eventually gets corrupted and Cindy Reed is simply taking the abuse to its inevitable level.

Some facts:

Cindy went long ETFC and decided to explain her position on SA in mid April.No problem there,essentially what the SA site is all about.
Then Cindy got a "bright idea". There's no real limits on SA,Cindy could flood the news with positive articles on ETFC and theoretically profit for her trouble by stimulating the stock pps.
So,our heroine marched over to the yahoo message board to actually recruit help in perpetrating this distortion of the process.
There she found other shills perfectly willing to join the cabal and promote the stock.Cindy trolled the board under the name savyinvestor11,the entire story can be followed by reading her posts:

search.messages.yahoo....

Her main partners in this blatant and undeniable promotion on ETFC are numbersssss and prescient11, other sympathetic and contributing posters include dig4gem, rossetti2000, methusalaw, piyrwsc, krisscritter_1, quasimatter and epiquette ,to name a few.
What these slimy folks are doing goes against the spirit if not the letter of the rules of SA.I don't like it and I'm going to dog them with this warning.
I have no position in ETFC after selling my last shares in June'07.I was a vocal long for 4 years before that and am currently a very vocal cautionary voice on the stock.All my posts can be found on yahoo under JBMARIA.




Here's the list of Cindy's pumps in chronological order:

Citadel Infuses E*Trade with Strong, Experienced Management
on May 29, 2008 about ETFC
Who Will Trigger E*Trade's Magic Moment - and a 111.4M Short Squeeze?
on May 29, 2008 about ETFC
Seeking E*Trade's 'Magic Moment'
on May 23, 2008 about ETFC
E*Trade: What the Analysts and News Haven't Told You
on May 22, 2008 about ETFC
Schwab, E*Trade: Monthly Activity Comparison and the Industry Average
on May 15, 2008 about ETFC, SCHW
E*Trade's Annual Shareholder Meeting Should Pressure the Shorts
on May 09, 2008 about ETFC
Comparative Price Shopping: Selected Banking, Mortgage and Brokerage Stocks
on Apr 21, 2008 about BSC, CFC, ETFC
E*Trade: Primed To Turn Around?
on Apr 18, 2008 about AMTD, ETFC, SCHW

2008 May 29 01:59 PM

[BioInvestor:]

The Real Expert: I have to say that just because Schwab wasn't interested in having you participate in one of their meetings isn't a reason to avoid the company!

2008 Jun 02 12:21 AM

[The Real Ex...:]

Bioinvestor, you have it wrong. It was not that they were not interested in ME - they were uninterested in helping their clients by having anyone remotely familiar with the real estate and credit crisis. All they were concerned with was selling them the typical "bull market" bill of goods, as their seminars revealed, while dening any problems in the market. I hope your reasoning abilities are better when it comes to your bio investing. Oh and by the way, if you knew who I was and saw my track record, you would understand better why Schwab should be excited to have me share my expertise with their clueless staff and clients - that is, if Schwab really cared about providing value. Fact is they do not. All they care about is suckering people into their "you can do it yourself" and "talk to chuck" BS. Any firm dealing with the stock market is crooked in some way or another.

As a caveat, Schwab website and executiom sucks royally. E-Trade has the best platform.

2008 Jun 02 12:20 PM

[The Real Ex...:]

Oh and one more thing I have learned. Apparently, Schwab sucks so bad that the company has bought up every web domain you can think of that indicates they suck, like schwabsucks.com etc. That is what you call blocking free speech. They know that millions are dissatisfied with them. Hey Chuck, what are you hiding. All that said, E-Trade has the best platform for online brokers but real traders use interactive brokers...much cheaper and you get access to global markets.

2008 Jun 02 12:32 PM