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Online brokerage firm E*TRADE Financial Corporation (ETFC - Analyst Report) reported a rise in its Daily Average Revenue Trades (DARTs) for the month of May 2013. E*TRADE’s DARTs were 162,940, up 15% from Apr 2013, but down 3% on a year-over-year basis.

Broker performance is generally assessed through DARTs, which represent the number of trades from which brokers can expect commissions or fees. The year-over-year decrease in DARTs was mainly due to sluggish economic recovery and investors’ reluctance to invest in the equity markets.

At the end of the month, E*TRADE’s total number of accounts was about 4.6 million, of which about 3.0 million were brokerage accounts, 1.2 million stock plan accounts and 0.4 million banking accounts.

Moreover, the company’s total brokerage accounts for May included 32,157 gross new brokerage accounts and 15,648 net new brokerage accounts. Additionally, E*TRADE’s net new brokerage assets were $1.0 billion, up from $0.5 million in the prior month. Total brokerage accounts and net new brokerage accounts evince the company’s ability to attract and retain customers who trade and invest.

As of May-end, E*TRADE’s customer security holdings were $154.2 billion, up 2% from the prior month. Further, E*TRADE’s brokerage-related cash rose 5% from the prior month and stood at $36.1 billion, with customers being net sellers of about $1 billion in securities. Moreover, bank-related cash and deposits for the company remained flat, ending the month at $6.7 billion.

Quarterly Performance

As of Mar 31, 2013, DARTs were 149,000, up 16% sequentially. Net new brokerage assets reported were $3.1 billion, up from $2.3 billion in the prior quarter. At the end of the quarter, E*TRADE reported 4.5 million customer accounts, including 2.9 million brokerage accounts. Net new brokerage accounts were 30,000, increasing from the prior-quarter level of 10,000.

Overall, credit quality improved during the quarter. E*TRADE's provision for loan losses fell 42% to $43 million on a sequential basis. Net charge-offs also declined 33% sequentially to $68 million. Further, allowance for loan losses fell 5.4% sequentially to $455 million.

For E*TRADE’s entire loan portfolio, on a sequential basis, special mention delinquencies decreased 9% and total at-risk delinquencies fell 8%.

Performance by Other Brokerage Firms

Earlier, in its Activity Report for the month of May, TD Ameritrade Holding Corporation (AMTD - Analyst Report) reported a 9% rise in average client trades compared with the prior month. Moreover, average client trades rose 13% on a year-over-year basis to 417,000. For the month, TD Ameritrade reported $530.9 billion in total client assets, up 23% year over year and 1% from the prior month.

Earlier this week, in its monthly market activity report for May, The Charles Schwab Corporation (SCHW - Analyst Report) reported Daily Average Trades (DATs) of 505,400. The DATs increased 17% from the year-ago month and 8% from the prior month.

Our Viewpoint

In the present recovering economy, rising DARTs and new brokerage accounts will be beneficial to E*TRADE. However, the sluggish macroeconomic environment could lead to reduced trading activities, which is a cause of concern. Moreover, fluctuating interest rates are expected to dent the company’s financials in the near term.

However, E*TRADE’s initiatives to mitigate balance sheet risks seem promising, in spite of the possible pressure on net interest margin in the near future. The company’s strong capital position and decreasing delinquencies are impressive and will likely aid it to navigate through the present economic environment.

E*TRADE currently carries a Zacks Rank #4 (Sell). Ladenburg Thalmann Financial Services Inc. (LTS - Snapshot Report) is a better performing stock in the same industry with a Zacks Rank #1 (Strong Buy).

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