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Online brokerage firm E*TRADE Financial Corporation (ETFC - Analyst Report) reported a hike in its Daily Average Revenue Trades (DARTs) for the month of November 2012. According to the monthly market activity report for November, E*TRADE’s DARTs were 130,202, improving 5% from October 2012, but declining 8% from November 2011.

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, E*TRADE’s total number of accounts came in at approximately 4.5 million, of which about 2.9 million are brokerage accounts, 1.1 million are stock plan accounts and 0.4 million are banking accounts.

For the reported month, E*TRADE’s total brokerage accounts included 26,312 gross new brokerage accounts and net new brokerage accounts of 7,361. Moreover, net new brokerage assets were $0.8 billion, rising from $0.3 billion in the prior month. Total brokerage accounts and net new brokerage accounts reflect the company’s ability to attract and retain customers who trade and invest.

During the month, E*TRADE’s customer security holdings were $139.9 billion, up 0.9% from the prior month. Further, brokerage-related cash moved up marginally by 0.6% from last month to $31.9 billion, with customers being the net buyers of about $0.3 billion in securities. Moreover, bank-related cash and deposits remained stable from October 2012 and ended the month at $7.1 billion.

For the month under review, total special mention delinquencies (30 to 89 days delinquent) edged up 3% from September 2012, but declined 2% from the prior month to $338 million in E*TRADE’s entire loan portfolio. Total “at risk” delinquencies (30 to 179 days delinquent) inched up 2% from September 2012 and dropped 2% from the prior month to $514 million.

Peer Performance

TD Ameritrade Holding Corporation (AMTD - Analyst Report) – an online brokerage firm – reported a 3% rise in average U.S. trades in its Activity Report for the month of November 2012. However, the U.S. trades declined 10% on a year-over-year basis. For the reported month, Daily Average Revenue Trades (DARTs) were 341,000, up from 330,000 recorded in the prior month. The rise in DARTs largely resulted from the improvement in equity markets.

Our Viewpoint

Amidst the challenging economy, rising DARTs and new brokerage accounts will be beneficial to the company.  However, 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. Moreover, its expense discipline and better capital position are impressive and will likely aid the company navigate through the current cycle.

E*TRADE currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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