E*TRADE Financial (ETFC) August DARTs Descend 5% Q/Q

Online brokerage firm, E*TRADE Financial Corporation ETFC reported a decline in its Daily Average Revenue Trades (DARTs) for Aug 2014. According to the monthly market activity report for August, E*TRADE's DARTs were 146,165, down 5% from the prior month and 1% on a year-over-year basis.

Broker performance is generally measured through DARTs that represent the number of trades from which brokers can expect commissions or fees. The fall in DARTs largely resulted from the sluggish 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 4.8 million, of which about 3.1 million are brokerage accounts, 1.3 million are stock plan accounts and 0.4 million are banking accounts.

For the reported month, E*TRADE's total brokerage accounts included 30,879 gross new brokerage accounts. Moreover, E*TRADE's net new brokerage assets were $0.9 billion, increasing from $0.4 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 $204.4 billion, up 4.6% from the prior month. The company's brokerage-related cash increased 2.5% to $41 billion, with customers being the net sellers of about $0.4 billion in securities. Moreover, bank-related cash and deposits for the company stood at $5.9 billion, flat compared with the prior month.

Peers Performance

Concurrently, another firm, The Charles Schwab Corporation SCHW reported its monthly metrics for Aug 2014. The company reported Daily Average Trades (DATs) of 460,000, flat compared with the prior month, while decreased 1% from the year-ago month.

Last week, another brokerage firm, TD Ameritrade Holding Corporation AMTD came out with its average client trades per day of 381,000 in its activity report for Aug 2014. This declined 6% from the prior month, but remained almost stable compared with the prior-year period.

Our Viewpoint

Amid the challenging economy, increase in DARTs and new brokerage accounts will be beneficial for the company. We remain concerned about the sluggish macroeconomic environment, which might lead to further 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 is impressive and will likely aid it to navigate through the current cycle.

E*TRADE currently carries a Zacks Rank #3 (Hold). A better performing stock in the same industry includes Piper Jaffray Companies PJC with a Zacks Rank #1 (Strong Buy).