The deceleration of GDP growth, substantial trading losses and significantly lower underwriting revenues have caused the securities industry gross revenue related to NYSE-reporting firms to decline by 3.6% in the Q3 2007 to $78.8 billion compared to Q3 2006. In addition, the housing sector contraction has made brokerage companies with significant exposure in the sector to report severe losses and assets write-downs.
Online brokerage companies, in contrast, have reported strong operating results and customer additions during 2007. As trading technology improves across the board, online firms have become increasingly competitive on price, yet price is still the major differentiator among the market players. Tiburon Strategic Advisors estimated that the total number of online accounts was 34 million in 2006 and is likely to growing at double-digit rates in both 2007 and 2008. Mintel's survey, Online Trading in the United States 2007, revealed that 17% of respondents have used an online brokerage company in the past 12 months.
According to the Securities Industry and Financial Markets Association, the pace of the US economic growth is likely to accelerate from the colorless 0.9% rate in Q4 2007 and 1.5% in Q1 2008 to 2.1% in Q2 and 2.5-to-2.6% during the second half of 2008. This should help online brokerage companies to further expand their businesses in 2008.
E*Trade Financial (NASDAQ: ETFC), the online financial services firm, crashed this autumn after its decision to deeply enter the mortgage lending business left it without cash as the value of its portfolio fell. A few months back, shares of ETFC fell more than 50% in a single day on rumors that mortgage exposure could lead the company to seek bankruptcy. The Company reported a 45% decline in net revenue, write downs of $197.6 million in asset-backed securities portfolio and a net loss of $58 million during the Q3 2007.
In November 29, 2007, ETFC succeeded to improve its balance sheet, obtaining cash infusion of $2.5 billion from Citadel Investment Group. The Company sold for pennies on the dollar its portfolio of collateralized debt obligations and mortgage-backed securities and issued additional debt and commons stock, as well as accepted the appointment of a new management team. In addition, the Company is executing a restructuring plan to shift the business model focus on retail and online segments, where it reported record revenue and income in Q3 2007.
While E*Trade is struggling to win-back and acquire additional retail customers, its rival Ameritrade (NASDAQ: AMTD) is likely to be the major beneficiary from the dislocation at E*Trade. AMTD reported solid operating metrics for November 2007 and increased the Q1 2008 EPS guidance to $0.39, well above the $0.27-$0.33 guidance range from October 2007 outlook statement. AMTD reported a record 339,000 average client trades per day in November 2007, nearly 37% higher than a year ago, while the client assets totaled $301 billion at the end of the month.
Charles Schwab Corp (NASDAQ: SCHW), another online broker that benefited from E*Trade struggle, has also reported strong operating gains in November 2007. SCHW said its average daily client trades were 344,400 in November, up 8% from October 2007 and 36% from November 2006 and the total client assets were $1.4 trillion as of the end of November 2007.
Meanwhile, TradeStation Group Inc. (NASDAQ: TRAD) have also reported strong customer additions: the Company brokering 55% more trades in November and 37% more trades in December 2007, than the same months last year.
About E*TRADE FINANCIAL
The E*TRADE FINANCIAL family of companies provides financial services including trading, investing, banking and lending for retail and institutional customers. Securities products and services are offered by E*TRADE Securities LLC (Member FINRA/SIPC). Bank and lending products and services are offered by E*TRADE Bank, a Federal savings bank, Member FDIC, or its subsidiaries.
About TD AMERITRADE Holding Corporation
TD AMERITRADE Holding Corporation, through its brokerage subsidiaries, provides a dynamic balance of investment products and services that further the Independent Spirit of individual investors. Listed by Barron's as the #1 Web browser-based online broker and Forbes as one of America's best big companies, the Company's full spectrum of services include a leading active trader program and long-term investor solutions, including a national branch system, as well as relationships with one of the largest networks of independent registered investment advisors. The Company's common stock trades under the ticker symbol AMTD.
About Charles Schwab
The Charles Schwab Corporation is a leading provider of financial services, with more than 306 offices and 6.9 million client brokerage accounts, 1.2 million corporate retirement plan participants, 212,000 banking accounts and $1.4 trillion in client assets. Through its operating subsidiaries, the Company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors.
About TradeStation Group, Inc.
TradeStation Group, Inc, through its principal operating subsidiary TradeStation Securities, Inc., offers the TradeStation platform to the active trader and certain institutional trader markets. TradeStation is an electronic trading platform that offers state-of-the-art direct market access [DMA] or direct-access order execution and enables clients to design, test, optimize, monitor and automate their own custom Equities, Options, Futures and Forex trading strategies. In 2007, TradeStation was named, for the third year in a row, Best Futures Brokerage and, for the fifth year in a row, Best Direct-Access Stock Broker, Best Professional Platform and Best Institutional Platform in "Technical Analysis of Stocks and Commodities" magazine.