Magazine article American Banker

Slow Trading Seen Hurting Discount Brokers' Profits

Magazine article American Banker

Slow Trading Seen Hurting Discount Brokers' Profits

Article excerpt

A decline in trading by retail investors could mean disappointing first-quarter profits for the discount brokers.

Richard Herr of Keefe, Bruyette & Woods Inc. lowered earnings estimates for Ameritrade Holding Corp. of Omaha, E-Trade Financial Corp. of New York, and Knight Trading Group Inc. of Jersey City, largely because retail trading volume has been below expectations.

In a note published Thursday, Mr. Herr wrote that first quarter activity was disappointing. He said a normal New Year surge in overall trading volume did not materialize after what had been a solid fourth quarter.

Richard Repetto, an analyst with Sandler O'Neill & Partners, LP, also said that there is not a lot of upside, and may be a modest risk, to the stocks of online brokers because of low market activity.

But Mr. Repetto has not tweaked his earnings estimates for the quarter. March retail trading numbers could change the picture, he said.

According to Mr. Herr, through February the combined daily average trades of Ameritrade, E-Trade, Charles Schwab Corp. of San Francisco, and Toronto-Dominion Bank's T.D. Waterhouse were only 2.9% higher than in the fourth quarter -- and down 10.7% from a year earlier.

"We have witnessed a divergence in trends since the start of 2005, as the active trader has backed away from trading to some degree," he wrote. "This has weighed on activity at Ameritrade and E-Trade, while Schwab has experienced an increase due to its adviser-based network."

Mr. Herr said first-quarter average daily trades are likely to decline 2% from the fourth quarter, to 168,000, at Ameritrade and remain flat, near 137,000, at E-Trade.

He said that he expects Schwab's daily revenue trades to average 197,000, 10% more than in the fourth quarter, and that he has not changed his earnings estimate of 13 cents a share for the company. …

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