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Online brokerage firm, E*TRADE Financial Corporation (ETFC - Analyst Report) reported an upsurge in its Daily Average Revenue Trades (DARTs) for Aug 2013. According to the monthly market activity report for August, E*TRADE’s DARTs were 147,517, up 5% from Jul 2013. Moreover, DARTs increased 21% on a year-over-year basis.

Broker performance is generally measured through the DARTs that represent the number of trades from which brokers can expect commissions or fees. The fall in DARTs largely resulted from the uncertain economic recovery and investors’ reluctance to invest in the equity markets.

At the end of the month under review, E*TRADE’s total number of accounts came in at approximately 4.6 million, of which about 3.0 million are brokerage accounts, 1.2 million are stock plan accounts and 0.4 million are banking accounts.

For the reported month, E*TRADE’s total brokerage accounts included 30,132 gross new brokerage accounts. Moreover, E*TRADE’s net new brokerage assets were $1.1 million, increasing from $0.6 billion in the prior month. Total brokerage accounts reflect the company’s ability to attract and retain customers who trade and invest.

As of August-end, E*TRADE’s customer security holdings were $158.3 billion, down 0.5% from the prior month. The company’s brokerage-related cash remained stable at $36.8 billion, with customers being the net buyers of about $1.0 billion in securities. Moreover, bank-related cash and deposits for the company stood at $6.5 billion, unchanged from the prior month.

Total special delinquencies (30 to 89 days delinquent) increased 9% from Jun 2013 but decreased 21% from the prior month to $294 million in E*TRADE’s entire loan portfolio. Total delinquencies (30 to 179 days delinquent) jumped 4% from Jun 2013 but declined 17% from the prior month to $404 million.

Quarterly Performance

As of Jun 30, 2013, DARTs were 150,000, up 1% sequentially. Net new brokerage assets reported were $4.8 billion, up from $3.1 billion in the prior quarter. At the end of the quarter, E*TRADE reported 4.6 million customer accounts, including 3.0 million brokerage accounts. Net new brokerage accounts of 30,000 were in line with the prior quarter.

Overall, credit quality was a mixed bag during the quarter. Net charge-offs declined 26.5% sequentially to $50 million. Further, allowance for loan losses dipped 0.9% sequentially to $451 million.

For E*TRADE’s entire loan portfolio, special mention delinquencies decreased 14% sequentially, and total at-risk delinquencies moved down 17% sequentially. However, provision for loan losses increased 7% to $46 million on a sequential basis.

Peers Performance

Last week, another brokerage firm, TD Ameritrade Holding Corporation (AMTD - Analyst Report) reported a 2% rise in average client trades compared with the prior month in its Activity Report for Aug 2013. Moreover, average client trades surged 26% on a year-over-year basis to 382,000.

Earlier this week, The Charles Schwab Corporation (SCHW - Analyst Report) reported its monthly metrics for Aug 2013. The company reported Daily Average Trades (DATs) of 467,300, down 6% from the prior month while it rose 24% year over year.

Our Viewpoint

Amid the challenging economy, increase in DARTs and new brokerage accounts will be beneficial to the company. We remain concerned about the sluggish macroeconomic environment, which might lead to lower trading activities. Moreover, fluctuating interest rates are expected to continuously impact the company’s financials in the near term.

However, E*TRADE’s initiatives to reduce balance sheet risk appear to be promising, although they will put near-term pressure on the net interest margin. The company’s strong capital position and decreasing delinquencies are impressive and will likely aid it to navigate through the current cycle.

E*TRADE currently carries a Zacks Rank #2 (Buy). The better performing stock in the same industry includes GAIN Capital Holdings, Inc. (GCAP - Snapshot Report) with a Zacks Rank #1 (Strong Buy).

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