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Goldman Sachs Comments on E-Broker Decline (ETFC) (AMTD) (SCHW)

April 4, 2014 9:12 AM EDT
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Price: $49.26 --0%

Rating Summary:
    11 Buy, 13 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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E-brokers stocks declined Thursday, with E*TRADE (NASDAQ: ETFC), TD Ameritrade (NYSE: AMTD), and Charles Schwab (NYSE: SCHW) all pressured. In the view of Goldman Sachs analyst Alexander Blostein, the issue relates to payment for order flow concerns.

"To be clear, outside of several news wires reporting on Thursday that the SEC is looking into the maker-taker model, there has not been much tangible news on the PFOF issue. However, given investor focus, we assess each E-Broker’s EPS exposure to PFOF with the caveat that this analysis involves a fair amount of assumptions (given that AMTD’s and SCHW’s disclosures are light)" said Blostein,

"* ETFC: We estimate that ETFC makes about $92mn in PFOF per year. Assuming 90% margin equates to $0.17 in EPS or 15% of 2015 consensus estimate. ETFC provides the most transparent disclosure; as per the firm’s 10K, in 2013 it made $72.5mn from PFOF, excluding flows routed to own market maker that was sold in 1Q13. Pro-forma for the sale, we estimate the annual run-rate at $92mn.

* AMTD: The company does not provide an explicit breakout of PFOF. But based on its DARTs and assuming the same relationship as observed at ETFC, we estimate $227mn in revenue contribution or $0.23 in EPS (14% of 2015 consensus estimate).

*SCHW: Based on management’s prior messaging, we estimate SCHW earns less than $100mn from PFOF, or $0.08 EPS exposure (7% of 2015 consensus EPS), below ETFC/AMTD given their deal with UBS."

For an analyst ratings summary and ratings history on E*TRADE click here. For more ratings news on E*TRADE click here.

Shares of E*TRADE closed at $22.17 yesterday.



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