TD Ameritrade ( AMTD) sank 8% Tuesday after the online broker slashed earnings guidance, citing a drop-off in trading activity.

Profit slumped 18% from the first quarter of last year to $141 million, or 23 cents a share. Revenue rose 5.5% from a year earlier, but dropped 2% from the fourth quarter to $524.7 million.

Analysts were hoping the brokerage would earn 24 cents a share on revenue of $534 million, according to Thomson Financial.

"It was not a good quarter," writes William Tanona, an analyst at Goldman Sachs. TD Ameritrade's "shortfall was driven by higher-than-anticipated expenses as well as modestly lower-than-estimated trading activity and commission rates."

The Omaha firm also cut its earnings projections for the full year to a range between 92 cents and $1.08 a share. Previously, the company had said it expected this year's earnings to be around $1.10 a share.

Average daily client trades dropped slightly from a year earlier to 253,631 trades. The average commission made per transaction also fell by 11%, to $12.49.

"While asset-backed revenues remain more than 60%, we've adjusted our guidance to account for the impact of recent market volatility and lower activity rates," says Joe Moglia, TD Ameritrade's CEO. "We have also decided to increase investments in our client experience to position us for more growth in 2008."

Tanona writes that TD Ameritrade's nearly 10% cut in guidance was not expected.

"While TD Ameritrade can't control the markets or, in general, activity trends, it appears to be having some issues achieving the much-anticipated savings from the conversion." Ameritrade acquired purchased Toronto-Dominion Bank's retail brokerage, TD Waterhouse, in January 2006.

TD Ameritrade's stock was down $1.28 to $15.59 on Tuesday.

Charles Schwab ( SCHW) fared a bit better, partially from an acquisition in the quarter. The brokerage's profit rose 12% to $273 million, or 22 cents a share, meeting analysts' expectations.

Revenue rose 9% to $1.15 billion.

But average daily client trades dropped 16% last quarter to 230,400.

Schwab added 193,000 new brokerage accounts in the quarter, up 4% from a year earlier and 20% from the fourth quarter. The average fee per trade rose 7% from a year earlier to $14.33.

"With more predictable revenues and sustained expense discipline, we remained focused on delivering consistently strong financial performance," says CFO Chris Dodds. "Despite reduced client trading activity late in the quarter, we were able to increase our marketing investment by 35% over last year and still achieve a 33.9% pretax profit margin."

Total client assets rose 16% to $1.3 trillion. In the first quarter, on the heels of its $115 million purchase of 401(K) Co. from Nationwide Financial Services ( NFS).

New and existing clients brought in $33.5 billion in net new assets during the first three months of the year, up 27% from a year earlier and the company's best inflow since the third quarter of 2000, it says.

Shares were flat on Tuesday at $19.51

TD Ameritrade and Schwab's other main competitor, E*Trade Financial ( ETFC), is scheduled to report earnings on Wednesday. Analysts are predicting E*Trade will earn 38 cents a share on $672 million of revenue.

Shares fell 16 cents to $22.20.

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