The Board of Directors of brokerage firm, E*TRADE Financial (NASDAQ:ETFC), have appointed Paul T. Idzik as the Chief Executive Officer of the company, effective January 22.  This announcement comes just a few days before the company’s earnings report for the fourth quarter of 2012, which is scheduled for Thursday, January 24. The new CEO will replace interim CEO, Frank J. Petrilli, and will look to turn around the company’s below-par performance observed through the first nine months of the year. E*TRADE reported a net loss of $29 million for the September quarter, influenced by a decline in trading volume.
Our price estimate for E*TRADE is $8, in line with the current market price for the stock.
- Low Volumes, Yields Weigh On E-Trade’s Q4 Results
- Trade Volumes, Limited Growth In Asset Base To Weigh On E*Trade’s Earnings
- Trade Volumes Remain Muted in November For E*Trade Financial
- E*Trade Experiences Mixed Trade Volumes in October
- E*Trade Q3 Results: Limited Revenue Capture From Trades, Low Yields Hinder Growth
- E*Trade Earnings Preview: Trade Volumes Rise In Q3 After A Slow First Half
DARTs On A Slide
E*TRADE earns about 20% of its net revenues through trading commissions, charging an average commission of $11 per trade. The company reported a 13% year-on-year decline in daily average revenue trades (DARTs) through the first nine months of the year, which led to an 11% decline in transaction based revenues. DARTs fell further by 10% in October, but improved by 5% in November. The trading volume at the end of November was 8% below the level for 2011. E*TRADE’s competitors, Ameritrade (NYSE:AMTD), Charles Schwab (NYSE:SCHW) also reported tepid trading volumes for the first nine months but have seen signs of recovery in the last three months of the year. Schwab reported an 11% increase in monthly trading volume in December, with the DARTs for the month up 10% from the figure for 2011.
We expect a gradual recovery in trading activity in the coming years.
Despite the slump in trading, E*TRADE has been attracting brokerage clients. Brokerage accounts at the end of September were up 4% from the prior year. E*TRADE added 23,365 gross new brokerage accounts in October and 26,312 in November. An increase in brokerage accounts will eventually lead to an increase in trading activity as macro-economic conditions become more conducive for trading.
Trading Affects Interest Income
Interest income accounts for 60% of E*TRADE’s revenue. Income from margin loans made to clients to allow them to purchase securities, accounts for 15% of the total interest income. The decline in trading activity has affected the company’s yield on margin loans, which declined from the 4.08% at the end of the third quarter of 2011 to 3.94% at the end of the September quarter in 2012.Notes:
- E*TRADE Financial Appoints Paul T. Idzik Chief Executive Officer, Press Release [↩]