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E*Trade's Credit Metrics Improve in May

Better credit metrics were helping E*Trade shares shrug off mediocre May trading numbers that lagged the double-digit growth of its rivals.



) --

E*Trade Financial


shares edged higher in midday action Monday although the online broker's May trading numbers lagged the double-digit growth displayed by its two largest rivals,

TD Ameritrade

(AMTD) - Get Report


Charles Schwab

(SCHW) - Get Report

E*Trade said daily average revenue trades, or DARTs, came in at 196,704 for the month, up 8% on a sequential basis, and down 10% from the year-earlier period.

DARTs are a key component of retail brokerage firms' top-line results. They also show the extent of investors' willingness to engage in the markets despite an uncertain economy and choppy action in the broad equity indexes.

TD Ameritrade Tuesday reported DARTs rose 13% from April and 18% from the year-earlier period to 484,000 trades.

Charles Schwab

said Monday that average daily trades came in at 512,700 in May, up 17% on a sequential basis and 14% from the year-ago period.

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E*Trade said it brought in $1 billion worth of net new brokerage assets during May. Year-to-date net new brokerage assets totaled $3.9 billion, the firm said. Customer security holdings fell by 6%, or $7.1 billion. Brokerage-related cash fell by $600 million to $20.9 billion, as customers were net buyers of approximately $1.6 billion in securities in May, E*Trade said. Bank-related cash and deposits fell by $500 million last month.

A bright spot was that E*Trade's recovering loan portfolio saw continued improvement. Total special mention delinquencies (those loans 30 to 89 days delinquent) fell by 12% during April and May, while total "at risk" delinquencies (those loans 30 to 179 days delinquent) fell by 10% during the same period, E*Trade said. FBR Capital Markets reiterated its outperform rating on the stock with a $20 price target following the news, citing the better credit metrics while noting that although DARTs were below peer levels for the month, they are still up 21.5% quarter-to-date.

Analysts say market volatility initially boosted trading at the online brokerages, including


last month, but they've since been leaning toward the view that second-quarter results are iffy because volumes slowed in the wake of the "flash crash" in early May and the

seasonal summer slowdown

has started to kick in.

For example, Sandler O'Neill & Partners analyst Rich Repetto recently cut quarterly estimates on TD Ameritrade by 2 cents to 28 cents a share and lowered his full-year view by 4 cents to $1.01 a share, citing the slower retail volumes. He continues to rate the company at buy.

"We suspect the May 6 flash crash as well as the market performance since then (S&P 500 down 4.3% since May 5) have shaken retail investors' confidence," Repetto told clients. "And while retail trading activity remained at sustained, relatively high levels in most of May (after record or near record retail trading levels on May 6), recent trading likely reflects less engagement from the active trader and/or a decline in activity as investors exited positions in May."

Analysts on average, according to

Thomson Reuters

, expect TD Ameritrade to earn 27 cents a share in the June-ending quarter; Schwab to earn a profit of 15 cents a share, and E*Trade to post a loss of 11 cents a share.

E*Trade shares, which underwent a

reverse stock split

earlier this month, were up 4 cents to $14.09 in recent trades.

--Written by Laurie Kulikowski in New York.