E*Trade Financial (ETFC) - Get Report extended declines Wednesday, while rival online brokers continue to fall as investors re-priced the retail stock-trading sector following Charles Schwab Corp. (SCHW) - Get Report move to eliminate commissions.
Analysts at Barclays slashed their ratings on E*Trade, Schwab and TD Ameritrade (AMTD) - Get Report two notches, to underweight, following Tuesday' shock announcement, which sent shares in TD Ameritrade to their lowest level in three years. Barclays suggested Schwab 2020 fiscal year earnings could slump by some 12% as a result of the commission cut for its 12 million online active accounts, while E*Trade and TD Ameritrade could see a 30% reduction in their respective bottom lines.
Charles Schwab shares fell 3.16% to $36.57, following Tuesday's 9.73% slump. TD Ameritrade, which plunged 26% Tuesday, declined 3.36% to $33.51, while E*Trade was down 3.19% to $35.35.
Canada's Toronto-Dominion Bank, which owns 42.7% of TD Ameritrade, fell 2.37% on the NYSE Tuesday, as well.
Schwab said Tuesday it would cut its online commission fees on U.S. stocks, exchange-traded funds and options from $4.95 to zero, starting on October 7. Customers will still, however, pay a 65 cent "contract fee" for each trade.
Schwab had previously cut commissions twice in 2017, lowering costs from $8.95 to the current level. The group said today's move would mean a loss of between $90 million and $100 million in quarterly revenues, a figure that translates to around 3% to 4% of total group revenues.
"Price should never be a barrier to investing for anyone, whether an experienced investor or someone just starting on the investing path," said CEO Walter Bettinger. "We're proud to provide clients with a full-service, modern investing experience that delivers on our no trade-offs combination of service, simplicity and superior value - backed by a satisfaction guarantee."
Schwab's move follows its purchase of the managed portfolio accounts of USAA Investment Management Co for $1.8 billion earlier this year, alongside an agreement to become the group's exclusive wealth management and brokerage provider.
Schwab earns around 8% of it revenues from trading commissions -- compared to around 23% for TD Ameritrade -- with the bulk coming from the net interest margin it gleans from cash held in customer accounts. Its second quarter net interest margin was 2.5%, the company said earlier this summer, down 6 basis points from the previous three month period.