Shares of E*TRADE (Nasdaq: ETFC ) rose 9% yesterday, fueled by the familiar scent of buyout speculation. With 133.3 million shares being swapped, it was the busiest trading day for the discount broker this month. The intraday high of $1.75 is also this month's top price.
Is it a coincidence that the acquisition chatter began just as E*TRADE posted disappointing account activity for the month of October? Probably not.
Last month wasn't all that hot at E*TRADE. Daily average revenue trades fell 5% compared with September, and 22% compared with last year. Then again, you have to give E*TRADE a mulligan for the year-over-year data. The market was falling apart last October, and panic-selling and vulture-ish carcass-picking filled the trading floor.
However, E*TRADE's account activity is a stinker when pitted against TD AMERITRADE (Nasdaq: AMTD ) . Its larger rival posted a 3% decrease sequentially and a 2% year-over-year increase in executed trades during the same month.
E*TRADE's brokerage business continues to tack on new accounts, though overall accounts fell slightly during October as the company continued to shake off online banking clients. Gaining new brokerage accounts truly matters at this point -- and it's why TD AMERITRADE or Charles Schwab (Nasdaq: SCHW ) will one day snap up E*TRADE.
Sector consolidation has been a big part of the discount brokerage industry. Potential suitors may as well step up now -- with E*TRADE's stock trading for pocket change -- rather than give the company an opportunity to fully overcome its ill-advised lending shackles and begin sprinting.
The list of potential suitors isn't limited to just TD AMERITRADE and Schwab, but they're the only obvious invitees. Full-service specialists at Raymond James (NYSE: RJF ) and Merrill Lynch parent Bank of America (NYSE: BAC ) may want to expand into the online discounting space, but they have other things on their plate right now. Interactive Brokers (Nasdaq: IBKR ) and optionsXpress (Nasdaq: OXPS ) may want some skin in this game, but they may be too small to hold up bidding cards.
The real steam behind yesterday's buyout buzz started after reports surfaced that TD AMERITRADE CEO Fred Tomczyk had told conference attendees that he was open to considering a deal with E*TRADE.
Tomczyk is smarter than that, though. When the time comes to make a serious push for E*TRADE, he won't go public with the information. As we saw yesterday, that simply leads speculators to bid up the stock, making any potential acquisition that much more expensive. TD AMERITRADE or Schwab is more likely to pull the trigger before it goes public with its aim.
So be patient, E*TRADE investors and speculators. Only after the chatter fades will any real buyout will begin taking shape behind the scenes.