(ETFC) E*TRADE Financial’s May DARTs Decline

Online broker E*TRADE Financial Corporation (ETFC) released its Monthly Activity Report for May 2011 on Wednesday, recording a sequential as well as year-over-year decline in average U.S. trades.

For the reported month, Daily Average Revenue Trades (DARTs) were 153,943, down 4% sequentially and 22% year over year. Broker performance is generally measured through DARTs. DARTs represent a number of trades from which brokers can expect commissions or fees.

At the end of the month, total accounts were approximately 4.3 million, including about 2.8 million brokerage accounts, 1.1 million stock plan accounts and 0.5 million banking accounts.

Total brokerage accounts of E*TRADE include gross new brokerage accounts of 28,895 and net new brokerage accounts of 4,520 during the month. In May, net new brokerage assets were $0.6 billion. Total brokerage accounts and net new brokerage accounts indicate the company’s ability to attract and retain trading and investing customers.

During the month, E*TRADE’s customer security holdings were $131.1 billion, down 2% sequentially. Further, brokerage-related cash inched up 0.4% sequentially to $26.5 billion, while customers were net purchasers of approximately $0.4 billion in securities in May. Bank-related cash and deposits inched down 1.2% sequentially to $8.5 billion in the reported month.

For the month of May 2011, total delinquencies (30 to 89 days delinquent) edged down 3% from March 2011 and inched up 4% from the prior month to $494 million in E*TRADE’s entire loan portfolio. Total delinquencies (30 to 179 days delinquent) plummeted 7% from March 2011 and inched up 2% from the prior month to $799 million.

Earlier this week, E*TRADE’s closest competitor – Charles Schwab Corp. (SCHW) released its Monthly Activity Report for May 2011, recording a 23% drop in client activity compared with May 2010 and a 9% decline from April 2011. The company’s daily average trades stood at 395,900 during the reported month. The substantial fall in client activity could be strongly indicative of investors’ lack of confidence in the stock market.

E*TRADE’sinitiatives to reduce balance sheet risk are encouraging, but it will add near-term pressure on interest margin. While the company’s capital position and restructuring initiatives are a positive, we believe that any improvement in credit metrics will occur at a tardy pace in 2011.

E*TRADE currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. However, considering the fundamentals, we maintain a long-term ‘Outperform’ recommendation on the stock.

E TRADE FINL CP (ETFC): Free Stock Analysis Report

SCHWAB(CHAS) (SCHW): Free Stock Analysis Report

Zacks Investment Research

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