DLJdirect Signs Up E-Loan
Donaldson Lufkin & Jenrette
unit, is beefing up its offerings beyond basic online trading. But its chief executive, of all people, doesn't think the firm's newest offering will attract much interest right away.
At its 10th anniversary party Monday evening in New York, at
no less, DLJdirect CEO Blake Darcy announced that the online broker would begin offering mortgages on its site with
. The multiyear arrangement will make E-Loan the exclusive provider of mortgage services for DLJdirect customers. The move is part of DLJdirect's effort, and a general industry shift, to offer more cash-management services and financial products. But Darcy isn't sure such services are going to be a big hit.
"In the short term, I don't have high hopes that it will have a big impact," said Darcy. He has indicated before that the mutual-fund section of DLJdirect's site, with nearly 7,000 funds, including over 800 with no transaction fees, hasn't been particularly popular.
Over the next 10 years, however, Darcy believes online traders will look to their brokers for a wide range of cash-management, debt-management and other financial products. Annuities, funds, mortgages and loans will grow in importance to traders and to brokers' revenue streams. More sophisticated account management and 401(k) management, for example, are going to be necessary to attract the serious investor that DLJdirect covets. On the account-management side, look for the second generation of DLJdirect's
software to come out in November. It's a personalizable trading platform that offers fast Internet access to information and trading.
"The days of just having trading are gone," said Darcy.
E-Loan has offered mortgages to
customers for several months -- the two companies announced a three-year deal on March 31. E-Loan is featured prominently on E*Trade's new site, known during its development period as "Destination," that was made available to the public almost two months ago. "Since the launch of 'Destination,' the traffic from E*Trade has exponentially grown," says Doug Galen, E-Loan's vice president of business development. E-Loan has relationships with about 30 sites.
Behind the Outage
Overall, most online brokers are getting more reliable. But down days still occur, especially as bits of technology are replaced or as new layers of technology are added onto existing systems.
Monday, customers complained about problems trading online at
, the industry market-share leader. The latest spate of tech trouble follows other complaints on Sept. 8 that the site was inaccessible.
"Schwab internet service went down before 10:00 a.m. this morning," wrote Andrew Biddle in an email to
on Sept. 28. "They have no ETA for when it will be up."
On Sept. 8, Schwab customer Karen Finerman wrote: "The Web site was completely and maddeningly unavailable for a few hours this morning. Frustrating."
Schwab says the problems on Monday were not Web-related, but were caused by ongoing technology enhancements. "We are constantly providing improvements to our systems and adding certain things," Schwab spokesman Tom Taggart said Wednesday. "One of the things we inputted into the system created some lack of availability on Monday for some customers."
Taggart says the availability of data for some customers was also affected, but that the problem was corrected by Tuesday. He knew of no availability problem on Sept. 8 and said Schwab's online trading system performed very well during the high-volume days at the end of August and beginning of September.
Online Brokers Fending Off Financial Stock Woes
September wasn't a good month for investment banks and brokerages. The ongoing financial crisis in Asia, turmoil in Russia and rumblings of trouble in South America have taken down investment-banking stocks, while market volatility has raised some concern about revenues at brokerages. Then, last Wednesday, the
Long Term Capital Management
debacle began to unfold like a sweeps episode of
without the few uplifting bits at the end.
investment banks and brokerages group was down 20% in September through Oct. 1, while the
was up 1%. In contrast, the online brokers were well up through September, although they were hit hard with the selloff on Thursday. Charles Schwab,
and E*Trade, which also are components of the Baseline group, were up 22%, 21% and 6%, respectively, from Aug. 31 through Oct. 1.
As a traditional discount/online broker hybrid, the increase in Schwab's stock is notable compared with its more standard competitors such as
"Relative to the brokerage industry, Schwab doesn't have an exposure to investment banking," says analyst Christopher Reed at
, which has no underwriting relationship with Schwab. "People know that it wouldn't have exposure to hedge funds." While a bear market could dampen trading volume, Reed counts on significant account growth to make up for it. Account growth for the pure online traders is expected to continue to be strong as well.
Online brokers have benefited in general from their domestic orientation. And so far, contrary to the fear that retail traders will sit out market volatility, several have said volume has been strong and that there's been plenty of buying.
Schwab announced on Sept. 16 it would beat earnings estimates for the September quarter, thanks in part to strong trading volumes. In the past several weeks, analysts have upped their earnings estimates for Schwab to 33 cents per share from 30 cents per share for the September quarter, according to
Schwab's announcement raised similar hopes for robust trading at Ameritrade and E*Trade, although spending on advertising is a question mark for the two, especially E*Trade. And there are still questions about how effective E*Trade's new site will be in revitalizing its lagging growth.
The online brokers are still off their mid-July highs. For the third quarter, when the investment banks and brokerage group was down 40% and the Dow was down 12%, Schwab was up 21% and Ameritrade was up 33%. E*Trade, however, slumped 19%. For the year, only Ameritrade shows a gain.