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… said the E-Trade (ET) President and Chief Operating Officer Jarrett Lilien when asked about the bombshell Bank of America (BAC) dropped last week by offering free online trades to customers who had at least $25,000 in their accounts. I am sure E-Trade investors are hoping that Lilien is right but I distinctly get the feeling that he is suffering from a dose of unbridled optimism. Online discount brokers like TD Ameritrade Holding Corp (AMTD), E Trade (ET) and Charles Schwab Corp (SCHW) have been battling the traditional full service brokers like Goldman Sachs (GS), Merrill Lynch (MER) and Morgan Stanley (MS) as well as each other for years to gain market share through low trading fees and strategic acquisitions. It stands to reason that Bank of America’s free offer to over 21 million qualified customers will have an impact on the discount brokers.
I have used an Ameritrade account for over five years and have also invested in their stock from time to time. The first time I invested in Ameritrade was back in 2002 when Ameritrade announced its decision to acquire privately held Datek Online Holdings, a deal that established Ameritrade as the top online discount broker. While I saw strength in the deal, the stock unfortunately followed the Nasdaq down in 2002 and lost half its value in the ensuing months. I held on to Ameritrade on account of its excellent management team, high insider ownership and margins that are the envy of even the most profitable tech companies. The stock did rebound and I sold it the following year for a handsome profit.