E-Trade, TD Ameritrade report customers kept trading in 1Q

The company's ill-timed foray into mortgage investing has masked the core strength of E-Trade's underlying business.

E-Trade added 62,000 accounts in the first three months of the year, bringing the total to 4.8 million. Trading volume jumped 12 percent to 190,724 trades a day on average.

Further, these metrics do not tell the whole story because many customers have taken their business to TD Ameritrade after reading E-Trade's bad news and one analyst's comments that E-Trade could go bankrupt.

"We're seeing customer metrics, new accounts and business heading in the right direction," said Chief Executive Don Layton.

E-Trade has been jettisoning risky debt from its balance sheet, which shrank by about $3.5 billion during the quarter. The company is looking to increase its cash holdings and refocus on its retail banking and brokerage operations.

Trading volume among retail investors has been propelled by tumult in the markets. Though the Standard & Poor's 500 Index sank 10 percent in the first quarter, trading volume remained heavy.

Many analysts expect the bump discount brokers have enjoyed from volatile markets will not last. If the U.S. economy enters into a recession which E-Trade said has already happened the pressure on the retail investor will overwhelm the boost from market turbulence.

Friedman Billings Ramsey analyst Matt Snowling wrote in a client note it will be tough for TD Ameritrade to keep up these strong earnings. Though asset growth in the first quarter was encouraging, Snowling said people are going to start trading less in the coming months as volatility wanes.

Ameritrade shares fell 8 cents to $17.50 in regular trading Thursday, then gained 28 cents in extended electronic trading.