Online Brokers Face Challenges After Shutdown

Online brokerages, already suffering from a downturn in the stock market, are likely to see their shares fall further when U.S. equity trading resumes on Monday.

Analysts are looking for stocks in general to decline once trading resumes, after a four-day suspension that began Tuesday following the worst terrorist attack in U.S. history. Brokerages, including online firms, are likely to suffer if consumer nervousness results in an extended market decline, they said.

“I think that most people, including industry leaders, expect the stock market to go down,” First Albany chief investment officer Hugh Johnson told the E-Commerce Times. “The market still has to price in the economic implications of the terrorist tragedy.”

E*Trade (NYSE: ET) last traded at US$6, down from a 52-week high of $20.06, and Ameritrade (Nasdaq: AMTD) has fallen to $5 from $21.50. Both companies have seen demand for their services fall along with stock prices.

Short-Lived Drop?

It remains to be seen whether recent events will take a long-term toll on the companies, or on the economy overall.

Though some are predicting recent events will tip the already weak U.S. economy into recession, Johnson said the market’s overall decline will be short-lived.

“There’s lots of help coming in the form of monetary stimulus, or lower interest rates, and fiscal stimulus, or increased government spending,” he said.

Searching for Perspective

Leo O’Neill, president of Standard & Poor’s, said in a statement that analysts at his firm “are convinced that this will not have a negative longstanding impact on global financial markets.”

Financial stocks are “obviously going to be very severely affected” by the disaster, said First Albany’s Johnson. Even those companies — like the online firms — that did not have offices in or near the World Trade Center will suffer if the stock market goes into an extended decline, he said.

However, as Johnson indicated, the market began dropping well before Tuesday.

“The brokerage sector of the market has been declining sharply” alongside a drop in U.S. equity values and a slowdown in activity from small investors, Johnson said.

“I don’t think there will be any change” as a result of the tragedy, he said.

Uncertain Outlook

Spokesmen for online brokerages said they could not predict exactly how or if the disaster — or simply the four trading days lost because of it — would affect their companies’ results.

Datek spokesman Mike Dunn told the E-Commerce Times that “it’s really hard” to speculate, but that the firm averaged 60,000 trades per day in August, charging $9.99 per trade.

“Our offices were far enough away from the event” to not incur any physical damage, said Dunn.

Datek, headquartered directly across the Hudson River from the World Trade Center in Jersey City, New Jersey, expects to be able to take orders and “begin initial functionality well in advance of the market’s opening,” Dunn said.

Helping Out

In the days since the attack, Datek employees have been helping out the rescuers, making sandwiches to be ferried across to the site, running errands and so on, said Dunn.

“The markets are closed,” he said. “There’s only so much we can do.”

Charles Schwab, the largest online brokerage — and one that also has brick-and-mortar operations — is “for the most part” open and ready to do business, said Steve Gomer, a spokesman for the company in San Francisco. Though a branch in the lobby level of the World Trade Center was destroyed, all the firm’s employees are “accounted for and fine,” he said.

Web traffic and phone calls to Schwab’s service centers have been “very light” over the last few days, said Gomer.