E*Trade, TD Ameritrade Talk Has Skeptic

Updated to include analyst interview comments, closing share price.

NEW YORK (TheStreet) -- The talk about a hookup between E*Trade Financial(ETFC Quote) and TD Ameritrade Holdings(AMTD Quote) heated up again earlier this month, but Raymond James isn't buying it.

"We do not believe that recent chatter regarding the potential purchase of E*Trade by TD Ameritrade has any merit," the firm told clients in a note Tuesday. "In our opinion, E*Trade needs several more quarters to work through its loan loss provisions before another online brokerage firm could reasonably be anticipated to acquire it."

The note was more of a general call on the brokerage and exchange sectors, lowering earnings estimates on both groups to reflect weaker stock trading volumes of late. In addition to E*Trade and TD Ameritrade, the firm cut its views for the fourth quarter on Charles Schwab(SCHW Quote), Investment Technology Group(ITG Quote), Knight Capital Group(NITE Quote), Nasdaq OMX Group(NDAQ Quote), NYSE Euronext(NYX Quote), optionsXpress Holdings(OXPS Quote), Penson Worldwide(PNSN Quote), and TradeStation Group(TRAD Quote).

Raymond James is still relatively bullish on the online brokers for the long-term, however, calling an increase in interest rates -- whenever it occurs -- "a very powerful catalyst for future earnings growth" and citing strong cash positions and the prospect of share buybacks as other positives.

But the round of speculation prompted last week by pro-M&A comments from TD Ameritrade CEO Fred Tomczyck at a Reuters conference roused the firm to weigh in. Beyond the contention that the overhang from E*Trade's ongoing wind-down of its home loan portfolio was significant enough to stave off any suitors for months, Raymond James also took issue with valuation assumptions that have been floated for E*Trade.