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

Includes: ETFC, SCHW
by: Cindy Reed

Yesterday, May 14, 2008, both E*Trade (NASDAQ:ETFC) and Charles Schwab (NYSE:SCHW) released monthly activity reports for April. TD Ameritrade (NASDAQ: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