Updated for closing share prices, information on TD Ameritrade CEO's comments, spokesperson statements from both companies.
NEW YORK (
shares spiked higher late Wednesday as talk of a potential acquisition popped up once again.
Earlier in the day, the company reported lackadaisical October trading activity for its customers although the latest metrics provided evidence the New York-based online broker continued to reduce its bank-related deposit assets.
But after trading modestly higher for the majority of the day, the stock jumped with less than hour of trading left, rising as high as $1.75. It closed up 9% at $1.69. Volume, which stood at around 20 million at 3:15PM EST, spiked to nearly 130 million.
The buying interest stemmed from comments made by
CEO Fred Tomczyk at a
conference that talked about the possible M&A activity by the Omaha, Neb.-based company. TD Ameritrade has long been talked about as a
of E*Trade, and a company representative addressed the speculation.
"It was taken out of context," TD Ameritrade spokesperson Kim Hillyer told
when asked about reports which mentioned the company as being specifically interested in E*Trade. Hillyer said Tomczyk talked about the different uses of cash and an acquisition was only one of the options discussed. He was also asked specifically about M&A, Hillyer said, to which he responded that the company would do what was best for the clients and shareholders.
report states that Tomczyk said an acquisition was "the best use" for TD Ameritrade's considerable cash position, and that the company would be interested in a deal involving E*Trade "under the right circumstances." The report also said Tomczyk stated TD Ameritrade was "primarily interested" in a deal involving other online brokers, and that he felt it would be "prudent" for the company to eventually pay a dividend. On Oct. 27, when TD Ameritrade reported its results for fiscal 2009, the company reported a total cash position of roughly $6.6 billion as of Sept. 30. TD Ameritrade shares closed down a penny at $21.26.
Pam Erickson, a spokesperson for E*Trade, provided this statement when asked about the stock's trading activity: "E*TRADE's Board of Directors and executive management team review any and all business opportunities in the best interests of its customers and shareholders. The Company does not comment on marketplace speculation or rumor."
E*Trade shares have traded in a relatively tight range of around $1.45-$1.55 since the start of November, although the stock did plumb an intra-day low of $1.33 on Nov. 2 when the company disclosed the withdrawal of its long-standing application for TARP funds during the session. It cited the success of other fundraising efforts for the decision.
Before the opening bell, E*Trade reported daily average revenue trades, or DARTs, of 194,662 for October, down 5.3% on a sequential basis from September DARTs of 205,526 and off 21.8% from DARTs of 248,817 in the same period a year earlier. The company added that, year-to-date, DARTs are now up 9%.
Total customer assets at the month's end were $142.9 billion, down 4% from the end of September, but up nearly 20% from a year ago. Bank-related cash and deposits fell by $500 million on a sequential basis,while the value of customer security holdings declined by $5 billion. Brokerage-related cash balances were "essentially flat" for the month.
E*Trade said total accounts at October's finish were 4.5 million with a small sequential dip on a net basis coming from a decline in banking accounts to 745,910, off 1.7% from September and 8.4% year-over-year. E*Trade has made a strategic decision to de-emphasize its banking operations as it works to lessen the burden of a troubled portfolio of home equity loans.
Also the company unveiled the addition of a number of trading features for its customers related to fixed income investing, including a bond ladder tool and a fixed income portfolio reporting capability.
FBR Capital Markets reiterated its outperform rating on E*Trade with a $2.25 price target on the stock following the news, saying it believes the shares could run much higher when the company gets back in the black.
"In our view, the company continues to execute on its plan to shrink the concentration of higher-cost savings deposits at E*Trade Bank, without damaging its core brokerage account franchise," the firm told clients. "As a result, we continue to believe that the company is on pace for a return to profitability in 2H10, offering significant upside potential for patient investors."
FBR Capital said the sharper decline in assets for E*Trade in comparison to its peers was less of a concern than it would be otherwise because it's consistent with the company's stated aim to "shrink the bank." The firm said its price target is based upon an estimated franchise value of $3 per share, which reflects a price-to-earnings ratio of 15X on 20 cents a share of normalized earnings discounted back over three years plus an additional benefit from a $1.6 billion deferred tax asset held by the company.
BMO Capital Markets, which has a market perform rating and $2 price target on the stock, said its estimate for DARTs of 188,000 for the fourth quarter for E*Trade "may prove a bit aggressive" following the report of October's trading activity since that number is based on sequential declines of 3% for both November and December, which is below the most recent trend from September.
The firm, however, doesn't expect any subsequent variation from its DART expectations to impact the bottom line and left intact its view for a loss of a penny per share for the fourth quarter. It sees loan-loss provisions as "the key bottom-line driver" for the next few quarters.
In an appearance Wednesday morning on
Fox Business Network
, Donald Layton, E*Trade's outgoing CEO and chairman, was quoted as saying consolidation is "part of the game in financial services," according to a
E*Trade's hefty base of trading accounts would give competitors like the aforementioned TD Ameritrade and
Charles Schwab Corp.
an industry-leading market share by a wide margin. The hang-up to any
has been the cumbersome home equity loan portfolio, which stood at roughly $8.3 billion at the end of the third quarter.
Layton also reportedly told
Fox Business Network
the company had hired a headhunter to search for his replacement but he had no update on any progress being made. Layton's announcement that he would leave E*Trade when his contract expired in December was made early in September, but the company has been relatively silent about its search for his successor, fueling some of the speculation that it could be being positioned for a merger or acquisition.
Written by Michael Baron in New York. Debra Borchardt contributed to this article.