World-wide Gloom For On-Line Brokerages

by Carla Johnson, Investorsoffshore.com, London

16 August 2001

The world-wide on-line broking community continues to suffer as retail investors stay away from the markets which have dealt them such heavy blows in the last year and a half.

In the US, leading brokerage Charles Schwab reported sharp declines in customer trading activity in July and said early August results showed further declines. "Given the prevailing environment, we are assessing the appropriate level of further restructuring initiatives, including reductions in our project and media spending, as well as our staffing and technology capacity," said David Pottruck, co-chief executive, in a statement.

The company reported average daily trades in July of 173,100, down 36% from July 2000 and down 7% from June.

Other US brokerages are experiencing similar fall-offs: Datek Online recently reported a 35% drop in trading activity for July compared with 2000.

Meanwhile, across the pond, things are no better. According to JP Morgan's quarterly online brokerage survey, trading volumes at online brokers dipped by 5-10% across Europe in July. Trades per account were down 29% in Germany and 24% in the UK in the second quarter compared with the first.

These glomy numbers came as Comdirect, Europe's biggest online broker, yesterday reported first-half net losses of Euros 37m ($33m), blaming volatile stock markets and the heavy cost of European expansion. Comdirect plans to slash costs by 20% and has cut 70 jobs. A further 80 will disappear this year as staff who leave are not replaced. Net commission income at Comdirect halved to Euros 52.4m in the first six months, with the numbers of orders executed in the second quarter falling 20%.

"At the moment the large German brokers are like Boeing 747s that are only half full," said JP Morgan. "They have to increase utilisation or change the model. That means offering a wider range of products, advice, investment centres and cutting costs."

Recommended