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Online brokerage firm, E*TRADE Financial Corporation (ETFC - Analyst Report) reported a decline in its Daily Average Revenue Trades (DARTs) for the month of Feb 2013. According to the monthly market activity report for Feb, E*TRADE’s DARTs were 152,154, decreasing 1% from Jan 2013 and 10% from Feb 2012.

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, 1.2 million are stock plan accounts and 0.4 million are banking accounts.

For the reported month, E*TRADE’s total brokerage accounts included 31,123 gross new brokerage accounts and net new brokerage accounts of 9,941. Moreover, E*TRADE’s net new brokerage assets were $0.9 billion, falling from $1.0 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 $144.9 billion, up 0.8% from the prior month. However, E*TRADE’s brokerage-related cash was in line with prior month and stood at $34.2 billion, with customers being the net buyers of about $0.9 billion in securities. Moreover, bank-related cash and deposits for the company remained stable from Jan 2013 and ended the month at $6.9 billion.

For the month under review, total special mention delinquencies (30 to 89 days delinquent) fell 9% from Dec 2012, and 2% from the prior month to $312 million in E*TRADE’s entire loan portfolio. Total “at risk” delinquencies (30 to 179 days delinquent) fell 8% from Dec 2012 and 4% from the prior month to $466 million.

Performance of Other Brokerage Firms in the Same Industry

TD Ameritrade Holding Corporation (AMTD - Analyst Report) – an online brokerage firm – reported marginally lower U.S. trades in its Activity Report for the month of Feb 2013. Moreover, the U.S. trades were down 6% on a year-over-year basis. For the reported month, DARTs were 386,000, down from 387,000 recorded in the prior month. The fall in DARTs largely resulted from lower trading in equity markets.

Our Viewpoint

Amid the challenging economy, expanding DARTs and new brokerage accounts will be favorable for E*TRADE. However, the sluggish macroeconomic environment might lead to lower trade activities. Moreover, fluctuating interest rates are expected to adversely affect the company’s financials in the near term.

E*TRADE’s initiatives to lessen balance sheet risk appear to be promising, although it might put near-term pressure on the net interest margin. Moreover, the company’s cost control initiatives and better capital position are impressive and will likely aid the company navigate through the current cycle.

E*TRADE currently retains a Zacks Rank #3 (Hold). Other brokerage firms in the same sector with a better rank include Evercore Partners Inc. (EVR - Snapshot Report) and Knight Capital Group, Inc. (KCG - Snapshot Report), which currently hold a Zacks Rank #1 (Strong Buy).

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