Price war, consolidation buzz brokers
By Steve Gelsi, CBS.MarketWatch.com
Last Update: 4:02 PM ET Nov. 30, 2004
NEW YORK (CBS.MW) - Price wars and possible mergers are buzzing around Wall Street as shares of E-Trade, Ameritrade, Schwab, and others draw the spotlight.
The trouble signs come despite signs of an overall improvement in the brokerage business as the stock market attempts to regain its footing.
Analysts at Jefferies & Co. said Monday that daily average revenue trades at online financial services firm E-Trade will finish November at 151,000, up 23 percent from October. Similarly, other online brokers have reported recent uptick in business.
Banc of America Securities initiated coverage of E-Trade (ET: news, chart, profile) with a "neutral" rating Tuesday, saying its banking business will at least partially offset expected lower revenue from falling commission fees.
"We assume ET will need to continue to cut prices to remain competitive, although the impact to E-Trade is muted by the fact that a significant portion of revenues and earnings come from the banking segment," analyst Michael Hecht said in a note to clients.
E-Trade shares fell 35 cents on Tuesday to close at $13.86. Ameritrade (AMTD: news, chart, profile) fell 42 cents to $13.94. Schwab (SCH: news, chart, profile) fell 17 cents to finish at $10.78.
Banc of America also picked up coverage of Ameritrade with a "sell" rating, while voicing the same theme of increased pressure on margins.
"We are seeing broad-based evidence of more intense pricing competition," said Hecht, who is assuming price cuts of 8 percent per year through 2009.
Meanwhile, Fox-Pitt, Kelton analysts said, "consolidation appears inevitable" in the retail trader segment among E-Trade, Ameritrade, Scottrade, Fidelity Brokerage, TD Waterhouse, Harris Direct and Brown & Co.
"We believe consolidation in the retail trade space will heat up as a result of general factors that affect all participants," said the broker.
Price erosion will spur the need for greater revenue scale as pressure to drive volume increases. Differentiation on trading capabilities is getting tougher among the brokers, and building non-commission revenue remains an industry-wide challenge.
Steve Gelsi is a reporter for CBS.MarketWatch.com in New York. |
