With consolidation expected to occur in the online brokerage industry as interest rates begin to rise, 24/7 Wall St. wanted to see how the major online and discount brokerages now stack up against each other in terms of total client assets, brokerage accounts and current trading activity. This includes E*Trade Financial Corp. (NASDAQ: ETFC) as the most likely to be acquired, if the past rumors have been accurate, with Charles Schwab Corp. (NYSE: SCHW) and TD Ameritrade Holding Corp. (NYSE: AMTD) as the would-be potential acquirers.

This review also includes Interactive Brokers Group Inc. (NASDAQ: IBKR), as it has been aggressive in the past about client acquisitions.

24/7 Wall St. is breaking these companies down individually by market cap and stock information, but we also are looking at items such as daily average revenue trades (DARTs), total client assets, number of brokerage accounts and the like. Each company includes different metrics in its monthly trade data.

E*Trade Financial

E*Trade Financial ended May with 3,198,095 brokerage accounts, a gain of 27,865 gross accounts and up 7,141 net for the month. If you include banking accounts, that was 4,836,090 accounts. May brought in net new brokerage assets of $1 billion and customer security holdings rose 2%, or $3.7 billion. Broker-related cash balances grew $700 million to $42.0 billion, and bank-related cash and deposits rose by $100 million to $5.6 billion. E*Trade’s DARTs of 151,444 were down 4% from April and down 3% from the prior year. Total customer assets were listed as $308 billion, up from $302 billion the prior month and up from $272.1 billion a year earlier.

Shares of E*Trade were trading around $30.75 Monday morning. The stock has a consensus analyst price target of $31.79 and a 52-week trading range of $18.20 to $31.41. E*Trade has a market value of $8.9 billion, and buyout rumors have been around on it since shares were trading at, under and above $10.00.

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Charles Schwab

Charles Schwab showed that it had total client assets at the end of May up 1% from the month of April to $2.57 trillion, up 9% from a year before. The net new assets in the month were $10.1 billion. Schwab also claims more than 325 office branches and 9.6 million active brokerage accounts, as well as 1.5 million corporate retirement plan participants, and 1.0 million banking accounts.

Shares of Schwab around $33.40 Monday morning, in a 52-week trading range of $23.35 to $33.72. The stock has a consensus analyst price target of $34.25. Schwab’s market cap is almost $44 billion.

Interactive Brokers

Interactive Brokers reported that the DARTs in May were 617,000, which was 19% higher than prior year and 2% lower than prior month. Its May ending client equity of $66.7 billion was up 31% from the prior year. Its ending client margin loan balances were $19.3 billion, and its ending client credit balances were $33.8 billion. Interactive claims 306,000 client accounts, up 18% from a year ago and 1% higher than the prior month. Also, the firm claims 468 annualized average cleared DARTs per client account, with an average commission per cleared client order of $4.27 if you include fees.

Shares of Interactive Brokers were trading around $35.50 Monday morning, in a 52-week trading range of $21.92 to $39.55. The stock has a consensus analyst price target of $35.00.

TD Ameritrade

TD Ameritrade reported that its average fee-based balances totaled $161.8 billion in May, up 17% from a year ago, while it had $710.8 billion in total client assets as of May 31 for a gain of 12%. There was also 427,000 client trades per day, for a gain of 11%. At the end of the first quarter, TD Ameritrade had 6,467,000 funded accounts.

Ameritrade shares were trading near $38.5o Monday morning. The stock has a consensus analyst price target of $39.13 on a 52-week trading range of $28.34 to $39.05. Its market cap is right at $21 billion.

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24/7 Wall St. has counted E*Trade as one of six dream mergers. As a reminder, it has barely been a month since the last analyst report signaled the potentiality of a consolidation round in the online brokers again. Merrill Lynch said at the time:

While we think the upside from rising rates and margins, as well as business growth could be significant, other factors could also impact the earnings potential and the stocks, including competitive pricing (where we see Schwab as most defensive and TD-Ameritrade and E*TRADE as more exposed) and/or possible M&A activity …

We view Schwab as well positioned given its exposure to higher short term rates, stronger organic growth (both NNA and balance sheet growth with capital deployment), and less pressure from competition …

While we do not view M&A activity as imminent, if these events were to play out, we view the most likely scenario being TD-Ameritrade acquiring E*TRADE. Based on the normalized earnings, potential pricing cuts, synergies, and premium paid, we see the potential for ~30% upside for Ameritrade and E*TRADE, though at current net interest margins, the upside gets cut by roughly half.

More details are available on the Merrill Lynch call from May.

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