E*Trade
The discount broker is paying the price for its exposure to the battered mortgage market. Last night's third-quarter report found the company posting a loss of $0.14 per share as a result of a $0.30-per-share mortgage writedown.
One can add that back to arrive at a profit of $0.16 per share, but don't assume the showing stacks up favorably against Wall Street's expectation of $0.10 a share. Analysts knew all about the charge, hosing down estimates from as high as $0.42 a share just last month.
Net revenue fell to $321.2 million for the period, weighed down by a $197.1 million net loss on the sale of loans and securities. Yes, that bite does come out of a broker's net revenue figure.
The pity here is that the retail brokerage side of E*Trade is doing great. If you pull yourself away from the devalued loans you will find a company in which:
- Total accounts rose by 6%.
- Client assets rose by 18%.
- Daily average revenue trades rose by 44%.
In other words, E*Trade didn't just grow its account base. The typical client entrusted E*Trade with more assets and conducted far more trades than at this point last year.
That's the same kind of vibe that investors got from Charles Schwab
So how badly is E*Trade being burdened by its decision to bankroll home loans? Let's see how all three of the leading discount brokers are doing this year.
10/17/07 |
YTD |
|
---|---|---|
E*Trade |
$12.47 |
(44%) |
TD AMERITRADE |
$19.08 |
18% |
Charles Schwab |
$22.43 |
23% |
Ouch! I'm not suggesting that E*Trade should get a free pass for its free-falling mortgages. Companies like E*Trade and H&R Block
However, I would much rather use this space to discuss the resilience of the discount brokerage industry. It's impressive. The market was worried a year ago that blue-chip bankers like Bank of America
If we go by the stock brokerage reports out of Schwab and E*Trade, we can see the discounters are doing just fine in this environment. That's comforting, but why should I bring up comfort when the market prefers to see E*Trade grimace as it balances precariously on a bed of nails?