UPDATE 1-Citigroup starts Charles Schwab on buy, E*Trade on sell

giovedì 12 marzo 2009 17:05

March 12 (Reuters) - Revenue drivers for discount brokers will continue to be under pressure in 2009 amid the global financial crisis, said Citigroup, which began coverage of Charles Schwab Corp SCHW.O with a "buy" rating and E*Trade Financial Corp (ETFC.O: Quotazione) with "sell".

"Discount brokers generate revenue primarily through fees on assets under management (AUM), net interest margin and trading commissions. All three drivers are facing headwinds," analyst Keith Walsh, who also began coverage of TD Ameritrade Holding Corp (AMTD.O: Quotazione) with "hold," wrote in a note to clients.

On Charles Schwab, Walsh said the No. 1 U.S. online broker has produced a strong track record of organic growth, market share gains, margin expansion and cash flow generation.

"Despite current market uncertainty, Charles Schwab is attracting assets at an impressive pace, with another $12 billion this January," said the analyst, who has a price target of $16 on the stock.

TD Ameritrade is still heavily weighted towards trading activity, which is decelerating, Walsh said, adding that AUM and interest pressure continue.

Every 3,000 DARTs, or daily average revenue trades -- a key measure of trading activity for retail brokerage firms, translates into 1 cent per share, said the analyst, who has a price target of $13 on the stock.

On E*Trade, the analyst set a price target of 25 cents on the stock, and said the company will struggle to reach profitability in the foreseeable future driven by continued deterioration of its $25.5 billion gross loan portfolio.

Shares of Charles Schwab were up 4 cents at $13.22, while those of TD Ameritrade were up 10 cents at $12.25 in midday trade Thursday on Nasdaq. E*Trade shares fell 10 percent to 61 cents. (Reporting by Sandhya Menon in Bangalore; Editing by Deepak Kannan)