NEW YORK Online brokers this week reported higher daily trading volume for January as people who sold businesses, properties and investments late last year to escape higher 2013 taxes began putting their cash to work.
Daily average trades on which brokers collected commissions rose 18 percent from January 2012 at E*Trade Financial Corp and 17 percent at TD Ameritrade Holding Corp, the companies reported in their monthly activity reports. Compared with December, when investors worried about fiscal cliff and lingering euro zone problems, trading was up 6 percent at E*Trade and 3 percent at TD Ameritrade.
Charles Schwab Corp., the biggest publicly traded online broker by market capitalization, has not yet posted its monthly trading figures. At a business update meeting last week, Schwab executives said daily average revenue trades grew in January but were still below expectations in a post-election environment.
"Trading did definitely pick up from late last year, but again it's not anywhere near the levels that you might anticipate in history," said Schwab Chief Executive Walt Bettinger. People are investing across the board in funds, bonds and stocks but "trading, not so much," he said.
Investors and analysts are keeping a close watch on trading volume at discount brokers to gauge investor sentiment about the market. However, brokerage executives say that commission-based trading figures are gradually becoming less important as they more aggressively market fee-based accounts that provide revenue regardless of how much trading takes place.
In addition to reporting trading volume, E*Trade on Tuesday said total customer assets at the end of January grew 13.3 percent from a year earlier and 4.4 percent from December 31 to $210.1 billion.
E*Trade, a New York-based company that is winding down its mortgage-plagued bank activities to focus fully on its brokerage, said net new assets collected in January fell to $800 million from $1.2 billion in December.
At TD Ameritrade, total client assets were up 17 percent from a year ago and 4 percent from a month ago to $499.3 billion.
Omaha, Nebraska-based TD Ameritrade did not break out net new assets, but its executives warned earlier that they are unlikely to continue at the high rates of December. It said average balances in brokerage, margin and other spread-based accounts grew 3 percent in January from the previous month while fee-based balances were up 5 percent from December.
Shares of TD Ameritrade were up 1.3 percent in late morning trading on Tuesday while E*Trade shares were up just under 1.0 percent. Schwab shares were up 0.9 percent.
Joe Martinetto, chief financial officer of Schwab, said trading this year remains a "wild card" but told analysts to expect more revenue to shift to fee-based products. "That's just the basic progress of the business model," he said, noting that Schwab just introduced a commission-free suite of exchange-traded fund products.
Commission-based revenue continues to drop as a percentage of revenue at TD Ameritrade, which is the largest of the big online companies as measured by daily revenue trades. In its fiscal first quarter, ended on December 31, transactions generated 39 percent of net revenue, and for its full fiscal year 2012 were 41 percent of net revenue. Commissions several years ago produced more than 60 percent of most discount brokerage revenue.
Schwab management said that commission-free trades are likely to increase as a percentage of total client trades in 2013, one factor behind Citigroup analyst William Katz's decision on Monday to downgrade his recommendation on Schwab shares to "sell" from "neutral."
Katz's primary reason for the downgrade was that Schwab shares are over-valued at about 23 times his estimated 2013 operating earnings, as well as his view that revenue growth is becoming too dependent on growth of assets at Schwab's bank subsidiary.
(Reporting By Jed Horowitz; Editing by Dan Grebler)