According to The Wall Street Journal, key U.S. brokerage house – E*TRADE Financial Corporation (ETFC - Analyst Report) – has decided to shutter its business in United Kingdom (UK). This move by the brokerage giant comes on the heels of the slowdown in trading activities in the market due to the reluctance of investors in betting their money attributed to the continued ambiguity surrounding the prospects of the Euro Zone.
Though E*TRADE has earned huge profits through trading in the share market, yet at the current level, European dealers are scrambling to maintain profit levels. European share trading for the year has recorded its lowest level since 2009.
Reasons for Closure
Bearing the brunt of Europe’s sovereign debt crisis and slow economic recovery, funds managers are striving hard to make profits in European countries. Therefore, to focus on core operations in U.S., they have come up with the decision of terminating their international operations.
E*TRADE has come up with the closure of London-based E*Trade Securities Ltd. The company has intimated clients to transfer their accounts to another company or get their positions liquidated and retrieve funds.
Over the last few years, E*TRADE has been selling off its businesses in places like India, Germany, the Nordics and Canada. The company’s move follows the impact of US mortgage crisis and the subsequent heavy losses. In the third quarter of 2012, the company's troubled mortgage portfolio waned 19% year over year and 5% sequentially to $11.1 billion.
Last week, E*TRADE reported a slump in Daily Average Revenue Trades (DARTs) in October. According to the monthly market activity report for October, E*TRADE’s DARTs were 124,246, declining 21% from October 2011 and 10% from September 2012.
Moreover, during the third quarter of 2012, E*TRADE reported DARTs of 129,000, down 7% sequentially and 22% year over year, reflecting investors’ aversion to trading.
Among peers, last month, The Charles Schwab Corporation (SCHW - Analyst Report) came up with the closure of the European arm of its derivatives trading unit, OptionsXpress.
Moreover, TD Ameritrade Holding Corporation (AMTD - Analyst Report) restricted the opening of new accounts and new business transactions in some foreign countries. Accounts will be closed down in Italy and Belgium, while some European countries will be constrained with certain types of transactions over the period.
In recent months, among others, Deutsche Bank AG (DB - Analyst Report), Nomura Holdings, Inc. (NMR - Snapshot Report) and UBS AG (UBS - Analyst Report), reorganized their European equities units with huge layoffs.
For quite some time now, investors have been incurring massive losses in trading. If this continues along with mounting regulatory pressure, it would deliver a huge blow to investors in the ongoing economic situation.
If the European crisis continues to linger, it will have significant impact on worldwide capital markets. On the other hand, the extremely low interest-rate environment is another manifestation of this uncertain macro backdrop.
Concerns about the European finances and soft U.S. growth prospects have made treasury instruments the choice of safe asset class. As a result, the yields on benchmark treasury bonds are hovering at low levels.
We don’t expect the potency of the sector to return to its pre-recession peak anytime soon. The economic intricacies are apprehended to lead to further disappointments in the upcoming quarters.