E*Trade Financial Corporation (NASDAQ:ETFC) has revealed plans to revamp its marketing efforts to alter its image from just a discount broker for equity and options to a comprehensive wealth management firm.  The change is a part of firm’s strategy to diversify and enhance brand reputation and position in long-term investor segment as it decides to remain independent post the strategic review by Goldman Sachs (NYSE:GS).  According to the company, its customers retain around 90% their financial assets, using firm’s services mainly to trade in stocks and options. We believe that securing a greater share of client assets will help the company to come at par with other online brokers, as Charles Schwab Corporation (NYSE:SCHW) and Ameritrade (NYSE:AMTD), which have a larger client asset base.
Speaking at the Goldman Sachs U.S. Financial Services Conference, CEO Steven Freiberg mentioned that many customers of the firm are not even aware of the broad range of services it offers. The firm experienced that some clients preferred personalized involvement facilitated by a financial consultant in place of merely online experience, and this helped in bringing more assets to the company. It is open to hiring more consultants if it a useful strategy to get more business.
It is important for E*Trade to gather more assets to be competitive with other brokers as it tries to rid itself of the huge loan portfolio on its balance sheet. As reported in its monthly activity report for November, for the entire mortgage portfolio, total special mention delinquencies increased 5% compared to October, while at risk delinquencies climbed 2% in the same period.  In the last month, the company also suffered 10% decrease sequentially and 11% year-on-year decline in daily average revenue trades (DARTs), which were 141,361 in November. Though other brokers fared a similar fate, due to fall in trading attributable to precariousness in the market, this is the worst performance of all. Average daily trades at 433,500 were down 15% compared to October 2011 for Schwab, but were 5% more than the same month last year.  Ameritrade registered 377,000 average client trades per day, down 7% and 4% compared to previous month and November last year respectively. 
We think that these setbacks ailing the industry will have a negative impact on the firm’s earnings and may slow its recovery, but with such efforts as the new range of ETF offerings, increasing market presence, expanding product range, the management seems determined to deliver value to investors in the long term.
Our price estimate for E*Trade is $13, which shows almost 50% premium to the current market price.Notes:
- E*Trade makes push beyond e-trading, Reuters [↩]
- E*TRADE Financial Corporation, Goldman Sachs US Financial Services Conference 2011, E*Trade News Release [↩]
- E*TRADE Financial Corporation Reports Monthly Activity for November 2011; Provides Updates to Its Loan Delinquencies, E*Trade Press Release [↩]
- SCHWAB REPORTS MONTHLY ACTIVITY HIGHLIGHTS, Schwab News Release [↩]
- Monthly Metrics – November, Ameritrade Financial Reports [↩]