On-Line Brokerages Suffer From Lower Trading But Add Accounts

by Mike Godfrey, Tax-News.com, New York

17 April 2001

Announcing a 12% fall in average daily trading volumes in February, leading US on-line brokerage Ameritrade Holding Corp. said on Thursday that it would slash its advertising budget by 25% (or $50m) and would lay off up to 14 percent of its work force.

Ameritrade said it processed an average of 100,000 trades a day in March, compared with 114,000 in February. The Nebraska-based company said it was finalizing about 270 to 300 job cuts. Only weeks previously, it had said it would cut about 170 jobs, or 7 percent of its staff. The continued fall in the Nasdaq, down 21% in 2001 so far, is restraining its clients' trading activity.

Ameritrade will save about $12 million annually from the cuts, it said. Ameritrade had about 2,300 workers before the layoffs. The company's shares have taken a bath and are now down more than 75 percent since March 1999, when they were worth more than $25 a share. They closed up 47 cents at $5.66 on the Nasdaq before the news was announced.

Apart from trading problems, Ameritrade has suffered from internal upheavals in recent months. The head of its brokerage unit, Jack McDonnell, resigned on 19th March after rowing with the company's founder and chairman, Joe Ricketts, over strategy. Joe's son Pete, a senior vice president at the firm, has replaced McDonnell on an interim basis. The company named Merrill Lynch executive Joe Moglia as CEO on March 5.

Ameritrade isn't the only on-line brokerage to suffer from declining trade volumes. The mighty Charles Schwab plans to cut up to 13 percent of its work force, and E-Trade last week said it cut its first-quarter advertising budget by 48 percent to cope with falling revenues. E-Trade managed a small quarterly operating profit, but revenues from processing customer trades fell by almost half.

A hopeful sign, however, is that many of the on-line brokerages continue to add new accounts even as trades remain scanty. Ameritrade said it opened 56,000 new accounts in March, bringing the total to one and a half million.

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