E*Trade DARTs Rise As Customer Internals Weaken (ETFC)

E*Trade Financial Corp. (NASDAQ:ETFC) released the industry metric that Wall Street looks at to see how its overall trading revenues are going.  Its DARTs (daily average revenue trades) rose a whopping 20.8% in July over the June reading, which is a fairly substantial number.  It also opened 100,787 gross new retail accounts to end with 4,658,228 retail accounts.

That is a great increase in trading for a firm, but it comes at a time when the internals appear to be weakening.  Its total retail assets decreased 1.9% sequentially to $208.8 Billion. This can fluctuate because of the market and it is no secret that the second half of July was painful after the stock market hit new highs earlier in the month.  This is not out of the norm.

But its margin debt balances are increasing.  End of period margin debt rose 5.5% sequentially to $7.9 Billion, with average debt margin balances showing a 5% gain to $7.6 Billion.  When you consider that the company did many mortgages in the past few years, this margin debt increase needs to be watched.  That isn’t a total killer for margin increases, but a couple more months of that would not be a welcoming sign to its retail customer base.

The company is trying to stave of weakness.  E*Trade’s president & COO, Jarrett Lilien said the franchise remains strong and doesn’t believe the current market cap reflects performance.  So he noted the company has been increase share buybacks over the last two weeks.

So far, shares of E*Trade are up 0.5% at $15.08 in pre-market activity.

Jon C. Ogg
August 15, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.