E*Trade Financial (ETFC): July Metrics In Line, But Mortgage Bomb Could Still Blow Up Balance Sheet

E*Trade’s (ETFC) July metrics were roughly in-line with expectations, FBR says.  But they do nothing to deter worries about business slowing at ETFC:

  • Total customer assets increased 0.1% to $162.2 billion.
  • Client securities of $128.6 billion increased 0.3%, splitting the July returns on the S&P 500 (–1.0%) and NASDAQ Composite (+1.4%), suggesting no meaningful net inflows during the month.
  • Despite volatile markets, net new accounts were 19,583, with total ending accounts at 4.4 million.
  • The 9.2% sequential increase in DARTs (daily average revenue trades) to 182,835 suggests slowing activity given the 12% month-to-date increase management noted on July 22 during the 2Q08 earnings call.

FBR notes that the drop-off in client activity is not unexpected given the lows reached in the equity markets mid month and is consistent with the activity pattern implied by TradeStation’s (TRAD) July metrics (released August 4).

FBR doesn’t see any magical reason to be positive on ETFC though, as its still has too much garbage on its balance sheet:

Although we believe the value of E*TRADE’s brokerage operations is worth more than where the stock trades today, the still hazardous nature of the company’s mortgage portfolio is enough the keep the stock range-bound for now, in our opinion.

FBR reiterates MARKET PERFORM on E*Trade Financial (ETFC), target $3.

See Also:
E*Trade (ETFC): Emergency Moves May Save Company, But Dilution Killing Stock
RIM (RIMM) and E*Trade (ETFC) Now Allow Trading-By-Blackberry


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