Most financial firms are supposed to benefit from low interest rates because of the spread they can get by borrowing short-term and investing long-term. The problem is that rates went so low to a non-existent equivalent rate of ZERO that now the brokerage firms cannot make any money on investor cash balances. The news given today by the FOMC that rates will remain exceptionally low through at least the end of 2013 rather than through at least mid-2013 is not a welcome for companies such as The Charles Schwab Corporation (NYSE: SCHW), E*TRADE Financial Corporation (NASDAQ: ETFC), nor for TD AMERITRADE Holding Corporation (NASDAQ: AMTD).
While equities and bonds see inflows and outflows depending upon the market, cash balances at brokerage firms remain very high as investors remain timid. If rates were at 1% the brokerage firms would be able to make a much better rate on that cash just sitting there.
Schwab is now down 2% at $12.20 versus a 52-week range of $10.56 to $19.69.
E*TRADE is now down over 4% at $9.13 versus a 52-week range of $7.42 to $18.13.
TD AMERITRADE is down by over 2% at $16.79 versus a 52-week range of $13.43 to $22.90.
JON C. OGG
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