ETFC E TRADE Financial Corporation

On Tuesday, Charles Schwab Corp. (SCHW) released its Monthly Activity Report for January 2012, recording an increase of 8% in Daily Average Revenue Trades (DARTs) from December 2011 to 468,400. However, the company’s DARTs declined 8% year over year. This year-over-year fall in DARTs was mainly attributable to the absence of a seasonal rise in transactions involving Schwab Mutual Fund OneSource product.

Schwab registered a fall in new assets, with net inflow of $7.1 billion in January 2012 as against $10.5 billion in December 2011. However, new assets surged from $6.4 billion recorded in the prior-year month.

Further, Schwab’s total client assets stood at $1.74 trillion as of January-end, rising 4% from $1.68 trillion in the prior month and 9% from $1.59 trillion in the prior-year comparable period. The company opened 74,000 brokerage accounts in January 2012, slipping 1% from 75,000 in December 2011 but in line with January 2011.

At the end of the reported month, Schwab’s active brokerage accounts totaled 8.572 million; flat sequentially but up 7% year over year. Moreover, clients’ banking accounts grew 1% sequentially and 12% year over year to 787,000 for January. Similarly, the number of corporate retirement plan participants was 1,504 million, improving 1% from December 2011 and 3% from January 2011.

Peer Performances

Earlier in the week, E*TRADE Financial Corporation (ETFC) also recorded a sequential rise in DARTs. For January 2012, DARTs were 145,390, up 20% sequentially. However, DARTs fell 20% from the year-ago period due to high market volatility, which pushed investors to the sidelines.

Similarly, last week, TD Ameritrade Holding Corporation (AMTD) recorded a sequential rise and year-over-year fall in DARTs for January 2012. The company’s DARTs were 374,000, jumping 18% sequentially, but dipping 17% year over year.

Our Viewpoint

We believe that the optionsXpress deal will likely boost Schwab’s top line to some extent. While a focus on lower-cost capital structure will help sustain better results in the upcoming quarters, the company’s financials will continue to be impacted by lower trading activity and volatile interest rates. We are also concerned about the company’s lower degree of capital intensity relative to its peers.

Schwab currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we maintain a long-term Neutral” recommendation on the stock.

 
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