After spending much of the past two years repairing its balance sheet, E-Trade Financial Corp. plans to spend this reevaluating its customer base in an effort to shift to more long-term investors from its traditional base of active traders.
“We plan to increase our investment in our brokerage business,” Robert Druskin, the New York company’s interim chief executive officer, said in a conference call Wednesday evening. “We want to enhance our suite of products and tools to attract quality brokerage accounts.”
The online brokerage company plans want to broaden and expand its customer base to bring in “higher quality accounts,” Druskin said. “We want to continue to grow our active base [of customers,] but we also want to reach more long-term investors,” he said. “We want to attract a different kind of client and reduce the churn on the other end that sees a lot of accounts come in and leave,” he added. “We want to see more stability in accounts opening and closing.”
E-Trade’s daily average revenue trades declined 20% to 174,000 from a year earlier and 12% from the previous quarter.
Analysts said E-Trade [ETFC] wants to add longer-term retirement customers and wealthier clients. It has already introduced a “premium” pricing structure to attract customers with larger balances.
Michael J. Curcio, an executive vice president at E-Trade and president of E-Trade Securities, said the company will consider adding around 10 branches over the next three to five years, but adding more long-term customers is going to be the result of it adapting its product and services. “We are not going to have a national RIA business like some of our competitors do,” he said.
E-Trade announced Wednesday that its losses narrowed in the fourth quarter as it set aside less money for loan losses. Loan loss provisions for the company’s banking unit declined 16% to $292.4 million from the third quarter and 43% from a year earlier. This marked the fifth consecutive quarter that the loan-loss provision has declined. E-Trade has been working to shrink the size of its loan portfolio since 2007. In 2009, E-Trade did a $1.7 billion debt exchange to reduce the size of its portfolio.
Druskin, who replaced Donald Layton at the beginning of this year after Layton retired, said bank capital will reach a “break even point” this year.
In the fourth quarter, E-Trade posted a loss of $67.1 million, or 4 cents a share, compared with a loss of $275.6 million, or 50 cents a share, a year earlier. Revenue, which included a loan-loss provision of $231 million, increased 7.6% to $523.4 million. Analysts expected a loss of 4 cents on revenue of $241 million, according to ThomsonReuters [TRI].
Druskin, who has been a director at E-Trade, said he expects operating expenses and headcounts will decrease slightly this year. E-Trade remains “committed” to its advertising and marketing strategy, and Druskin said he expects spending will “remain consistent to 2009.”
After a month as chief executive officer, Druskin said he is confident that E-Trade has “the right senior management to drive success.” He said the company has made “meaningful progress” in its search for a new CEO. “We have a preferred candidate in our sites we are going through some logistical issues, but we expect to have an announcement in the near future,” he said. E-Trade was looking for a CEO “with a longer time horizon” and a strong background in retail financial services, Druskin said.
Other analysts said that E-Trade may be forced to cut its trading commissions to keep up with competitors, including Charles Schwab Corp., [SCHW] that have already reduced prices.
Druskin disagreed. He said E-Trade is working to upgrade its products and services and improved customer service.
“It is not a winning game just to compete on price,” he said. “We want to compete on value. As long as we are ‘price competitive’ we can create a value proposition to be a winner.”
E-Trade “continues to see strong signs of progress,” Druskin said. Brokerage account attrition declined to 13.5% last year from 16.7% in 2008. In 2010, “We expect customer activity levels similar to 2009,” he said. “We like the progress we made in 2009 and look forward to more progress in 2010.”