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Online brokerage firm, E*TRADE Financial Corporation (ETFC - Analyst Report) reported a surge in its Daily Average Revenue Trades (DARTs) for the month of Apr 2013. According to the monthly market activity report for Apr, E*TRADE’s DARTs were 141,255, rising 1% from Mar 2013. However, DARTs declined 3% 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 4.5 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 33,090 gross new brokerage accounts and net new brokerage accounts of 6,534. Moreover, E*TRADE’s net new brokerage assets were $5 million, plummeting from $1.2 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.

As of April-end, E*TRADE’s customer security holdings were $151.7 billion, up 1.5% from the prior month. However, E*TRADE’s brokerage-related cash decreased 0.9% from the prior month and stood at $34.4 billion, with customers being the net sellers of about $20 million in securities. Moreover, bank-related cash and deposits for the company dipped by $0.3 billion, 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 of 30,000 surged considerably from the prior-quarter level of 10,000.

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

For E*TRADE’s entire loan portfolio, special mention delinquencies decreased 9% sequentially, while total at-risk delinquencies also moved down sequentially by 8%.

Performance by Other Brokerage Firms

Last week, TD Ameritrade Holding Corporation (AMTD - Analyst Report) reported a 4% rise in average client trades compared with the prior month in its Activity Report for the month of Apr 2013. Moreover, average client trades surged 6% on a year-over-year basis to 383,000. For the month, TD Ameritrade reported $524.4 billion in total client assets, up 16% year over year and 1% from the prior month.

Earlier this week, in its monthly market activity report for Apr 2013, The Charles Schwab Corporation (SCHW - Analyst Report) reported Daily Average Trades (DATs) of 470,000. The DATs were up 2% from 458,900 in the year-ago month but down 3% from 486,000 in the prior month.

Our Viewpoint

Amid 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. 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 #4 (Sell). The better performing stock in the same industry includes LPL Financial Holdings Inc. (LPLA - Snapshot Report) with a Zacks Rank #1 (Strong Buy).

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