| 16 June 2010

E*TRADE Financial Corporation checked in this morning with their May monthly brokerage metrics. The firm repeated what has become a familiar refrain this month for the online brokers: trading activity is up while assets are down. In E*TRADE's case, they reported an 8% increase in trading activity month-over-month, while losing 6.8% in customers assets.

We pointed out in our last post about TD Ameritrade's (AMTD) results that the markets were down over 9% for the month, and assets, we have found, are tightly correlated to the market. Unless you add a lot of net new assets (E*TRADE added $1 billion) broker assets are, to a large extent, at the mercy of the markets. Charles Schwab (SCHW) has been the only outlier, so far. They added $4.7 billion in assets to their core brokerage business. But their (bigger) problem is the losss of roughly $50 billion in assets in their clearing business.

Let's dive right in to the charts with E*TRADE, shall we? First we take a look at DARTs, which did increase this month compared with April, but not as much as some other brokers. E*TRADE's trading activity jumped 8% while Schwab's activity jumped 17% and TD Ameritrade's activity jumped 14%. Trading activity, however, doesn't impact bottom line results as much as it used to. In fact, E*TRADE has already indicated that they would take a hit thanks to lower comissions.



New accounts, then, is where your bread is buttered. New accounts bring assets and the opportunity to upsell, cross-sell and introduce new fee-based services. In E*TRADE's case they did add new accounts in May, but not nearly as many as in April. We're holding judgement on these results for now until we see how much they've spent in marketing dollars to get these new accounts.

We've discussed their propensity to over-spend in the past, and we wait with bated breath to see the net result of their CEO's committment to actually spend MORE in advertising.



Finally we look at total customer assets. While it might make more sense just to look at brokerage assets we have found it less meaningful to separate those figures, so we look at total customer assets. As we mentied in our open, the firm lost 6.8% of their customer assets. These results are actually not terrible given that the markets lost over 9% in the same month. But, by comparison, TD Ameritrade lost 5%. (Schwab lost and gained, see above.)



These results show the vulnerability of brokers in off markets. What we're looking forward to now is a deep dive into how much they spent to acquire these new accounts, which we'll get during earnings season next month.