EARNINGS PREVIEW: US Online Brokers To Post Lower Numbers

TAKING THE PULSE: Quarterly earnings will fall from a year earlier for online brokers as they struggle with lower stock prices and low interest rates.
The strongest two online brokers, Charles Schwab Corp. (SCHW) and TD Ameritrade Holding Corp. (AMTD), should benefit from higher-than-expected retail trading. The rise in trading followed March's stock market rally, and will boost a measure called daily average revenue trades.
E*Trade Financial Corp. (ETFC) also benefited from a revival in trading, but that benefit is expected to be swamped by its continuing efforts to work through mortgage woes in its banking subsidiary.
All three online brokers are seeing lower revenue due to the market decline, which has reduced assets under management from a year earlier. Moreover, money-market-fund fee waivers, made necessary by extremely low short-term interest rates, are also hitting revenues in the group. Low interest rates also continue to pressure net interest income at online brokers.

COMPANIES TO WATCH: 
   Charles Schwab Corp. (SCHW) - Reports July 16 
 

Wall Street Expectations: Analysts polled by Thomson Reuters, on average, expect earnings of 18 cents a share on revenue of $1.08 billion. A year ago, Schwab reported earnings of 26 cents a share on $1.3 billion in revenue.
Key Issues: Although fees earned on assets account for just under half of Schwab's quarterly revenue, some analysts are projecting a quarter-over-quarter increase in assets - with JMP Securities projecting a rise of 11%. Such an improvement would help offset the impact of roughly $60 million in money-fund fee waivers. Net interest income will continue to decline, though continued resilience in retail trading, deposit growth at the bank and a recovery in margin balances could mitigate the impact.

TD Ameritrade Holding Corp. (AMTD) - Reports July 21 
 

Wall Street Expectations: Unlike its industry peers, TD Ameritrade will report earnings for its fiscal third quarter. Analysts are looking for earnings of 28 cents a share on revenue of $571 million, compared with year-ago earnings of 34 cents a share on $623.6 million in revenue.
Key Issues: While TD Ameritrade, like Schwab, faces damage from fee waivers, Fox-Pitt also estimates a 21% quarterly decline in fund-fee revenue. The company closed its acquisition of options broker thinkorswim, which won't significantly impact earnings yet, but should aid in capturing share of the trading market. Commission revenue should rise from an increase in retail activity, while the shift to asset-gathering remains a big focus for investors.

E*Trade Financial Corp. (ETFC) - Reports July 22 
 

Wall Street Expectations: E*Trade is seen reporting a loss of 31 cents a share on $89 million in revenue. A year ago, E*Trade posted a loss of 19 cents a share on revenue of $532.3 million.
Key Issues: E*Trade announced a long-awaited capital-raising plan in June that diluted shares but eased near-term uncertainty regarding its future. However, the quarterly focus remains on the amount of money the company sets aside to offset losses from bad loans. While brokerage results should remain in line with peers, investors could gain additional confidence in the franchise if E*Trade meets its pre-announced loan-loss provision estimate and reveals declines in delinquencies within its home-equity portfolio. In addition, E*Trade is still awaiting approval of its application for bailout money from the Troubled Asset Relief Program.

(The Thomson Reuters estimate and year-ago figures may not be comparable due to one-time items and other adjustments.)

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