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

TD Ameritrade on Thursday reported a profit of $186.7 million for the January-March period, a 32 percent leap from the first quarter last year. At 31 cents per share, profit matched analysts' expectations, according to a Thomson Financial survey. The company affirmed its profit target for the year, predicting earnings per share of $1.32.

Like its rival E-Trade, TD Ameritrade runs a discount brokerage enabling retail customers to trade stocks and establish investment accounts.

Clients entrusted an additional $7 billion to the Omaha, Neb.-based company during the quarter, bringing clients' assets to $306 billion. Trading volume surged 23 percent to an average of 312,000 trades a day on average, fueling higher revenue from commissions.

Revenue climbed 19 percent to $622.9 million.

E-Trade did not fare as well. The New York-based company posted a loss of $91.2 million and has lost $1.8 billion in the past six months. The first-quarter loss of 20 cents per share was double the loss analysts expected.

However, E-Trade's travails are a symptom of the company's balance sheet, not its core business of executing trades and managing investments for customers.

E-Trade reported its results after markets closed. Its shares rose 43 cents, or 11.9 percent, in after-hours trading after gaining 29 cents to $3.62 in the regular session.

Ever since E-Trade sold a $3 billion book of risky mortgage investments at less than 30 cents on the dollar, the beleaguered company has been attempting to repair its finances. E-Trade expects to lose as much as $1.5 billion on a portfolio of home equity loans, and the company's stock has surrendered three-quarters of its value in the past six months.

E-Trade set aside $234 million to cover bad mortgage loans in the first quarter, pushing total revenue down to $316.2 million from $645 million last year.

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.