[B] REPEATS: BRIDGE FOCUS: Schwab touts assets as E*Trade boasts new accts
By Cameron Dueck, Bridge News
New York--Oct 14--The online brokerage industry is still in the land-grab
stage as the leading firms spend millions of dollars staking out market share.
While Charles Schwab Corp. impressed analysts with its net asset growth in the
past quarter, E*Trade Group says it is gaining ground on Schwab in the fight for
new accounts.
* * *
E*Trade and Schwab both reported earnings this week, and the two leading
online brokers told very different stories of the third quarter. The past
quarter was a challenging one for the firms as interest rate fears, a seasonal
slowdown and decline in Internet stocks combined to put a chill on the online
brokerage industry.
E*Trade wowed Wall Street on Wednesday with its new account growth, adding
310,000 new accounts for a total of 1.55 million. However, the firm is pursuing
the "middle America" clientele, which has undermined its per-account asset base
and limited the overall asset growth to $2 billion in the quarter.
Schwab announced its quarterly results a day later, and the market focused
on the firm's stellar asset growth as it attracted $25 billion in new net
assets, pushing the total to $595 billion, with $263.6 billion of that in online
accounts. But, Schwab's new account number, at 282,000, was less than
impressive.
E*Trade, through its rapid account growth, managed to keep its overall
transaction figures flat from the previous period while mo
st other firms saw a drop in overall activity.
Kathy Levinson, president and chief operating officer of E*Trade,
said the company gained 1% in the online transaction market share this
quarter, putting them at or just above 15%.
"We're very pleased with the flat quarter, the industry (average transaction
volume) was down 10%, and we think we've closed the gap with Schwab a little
bit" Levinson said. "We think we're within 10 points of them now."
Levinson said E*Trade was about 20 percentage points behind Schwab a year
ago. However, E*Trade, with its 1.55 million accounts, still has a long way to
go to catch up to Schwab's some 3 million online accounts, with 6.3 million
overall.
US Bancorp Piper Jaffray data shows Schwab had a 25% all trade market share
as of the second quarter in 1999, while E*Trade held 14%. TD Waterhouse Group
held a 11.7% stake, with Datek Online garnering a 10% share.
Schwab says E*Trade may be raking in new accounts, but they're not the ones
that count.
Chris Dodds, the chief financial officer at Schwab, said Schwab's sales and
marketing people are commissioned to bring in assets and are not focused on new
account figures.
"Our focus at Schwab has, for some time and continues to be, acquiring and
retaining assets, and if you look at the numerics, if they are not the envy of
the industry they are certainly very competitive, and that is indicative of our
approach," Dodds said.
"Is it better to spend on advertising to bring in 500,000 new accounts that
each have $10,000 in assets and then only report $5 billion in new assets?"
Gregory Smith, an analyst with Hambrecht & Quist, said while E*Trade may be
gaining on Schwab in account numbers, the new accounts are of a different breed
than the industry leader's.
"E*Trade wants a bigger share of the overall assets out there, and they are
taking a pretty broad market approach, a blanket approach, and I'd expect they'd
get a number of smaller accounts."
Schwab said its high-quality new accounts each bring in $44,000 in assets,
which is up 42% from one year ago. However, its average account assets are
approximately $94,400, while E*Trade's per account assets average about $18,000.
"Schwab's account growth is of a better quality," Smith said. "While what
E*Trade is doing is not a bad thing, you have to keep an eye on your marginal
customers if you do that."
Levinson said while many of E*Trade's new clients may be opening an account
at the $2,000 minimum, it's future growth that counts.
"There are many customers that firms like Merrill Lynch are not taking, that
are from middle America, and they are in the early stages of their earning
power," Levinson said. End
Bridge News, Tel: (212) 372-7569
Send comments to: equity@bridge.com
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Oct-15-1999 09:39 GMT
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