Brokerages Lose Volume
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E*TTRADE (NASDAQ: ETFC) recently announced that CEO Steven Freiberg is on his way out and chairman Frank Petrilli will be taking over as interim chief executive. The board has formed a committee to oversee the process of searching for a long-term chief executive. Raymond James analysts “believe this was a decision based on finding a different skill set at the CEO position.” The company is searching for a new CEO to focus on strengthening its financial position as it adjusts its business strategy. As individual consumers pull money out of the stock market, this online brokerage has been struggling. E*TRADE’s net income dropped 16% in the second quarter year over year as there was lower trading activity. The company is now trying to focus on managing costs and decreasing risk to strengthen earnings.
While E*TRADE noticed a slump in trades and earnings, Charles Schwab (NYSE: SCHW) tells a different story. The company’s second quarter earnings increased 16%. The company attracted more clients in its financial advisory and brokerage and banking businesses. The company noted a 6% gain in their corporate retirement plans. Also, resolving a dispute with an unidentified vendor led to a $70 million pretax gain. Schwab is only one of many asset managers that have been hurt by lowered short-term interest rates coming out of the recession. However, the company appears to be making do. Schwab’s product line is more diversified than that of E*TRADE. This gives Schwab the opportunity to offset any potential earnings losses through other divisions, giving the company a clear advantage.
However, E*TRADE is not the only brokerage firm experiencing lower trading volume. TD Ameritrade (NYSE: AMTD) reported a lower trading volume than the year prior. The company also reported a 2.3% profit decrease year over year. However, the company’s discipline in following strategy led it to beat analysts’ estimates for the company. According to Credit Suisse analyst Howard Chen, Ameritrade has done a good job of controlling its expenses, but he expects the economic challenges to get worse before they improve. The economic challenges he is referring to have led to lower trading volume and lower interest rates. Ameritrade, like E*TRADE and Schwab, generates its revenue from commissions charged to investors on trade and also from asset-based fees and interest it receives on the assets it holds.
These brokerages have faced a difficult trading climate as sovereign debt issues in Europe and the recent volatility have dimmed the appetite of retail investors. For the most part, the situation is expected to remain the same and change is not expected until after the political elections in the U.S. The continued volatility in the markets will continue to scare off retail investors, losing these companies revenue from commissions. It also means that the companies will hold fewer assets which means they will generate less interest. E*TRADE and Ameritrade are mostly brokerage firms and they depend on these revenue streams. Schwab, however, is more diversified and appears to be faring better with more sources of revenue to draw upon, offsetting the losses in its brokerage business.
MaryPosey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Charles Schwab and TD AMERITRADE Holding. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.