Billions Lost: Here’s How Much E-Trade, Schwab and TD Ameritrade Are Losing From Slashing Trading Fees

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Topline: As the race to the bottom continues, slashing trading fees will eliminate billions of dollars of revenue for discount brokerage firms, although some may be better positioned to weather the impact.

  • Charles Schwab—the first to nix trading fees last week, followed by E-Trade and TD Ameritrade—estimated it would lose $360 million to $400 million of annual revenue. Commissions make up 7% to 8% of its total business.
  • TD, for which trading fees still make up a large part of its business, estimated an impact of $220 million to $240 million per quarter, or around 15% of overall revenue. 
  • E-Trade, on the other hand, relies on commissions for roughly 11% of its overall business; it forecast a $75 million hit to its revenue in the past quarter. 
  • In a note last week, Harris downgraded the discount brokers across the board, predicting a larger revenue hit: Trading fees will drop to 7% from 16% of E-Trade’s total revenue and to 10% from 24% of TD’s total revenue. 
  • Harris also points out that among these brokers, Schwab, with more than $10.7 billion in annual revenue, relies less-heavily on trade commissions and could subsequently be better positioned to weather the impact.

What to watch for: How big of an impact it has on stocks—which have all dropped since their respective announcements: TD (27%), Schwab (15%) and E-Trade (14%).

Key background: Brokerage firms have been slashing fees and commissions for years as they jostle to stay competitive. This has resulted in a price war to  meet growing demand for low-fee investing products. Other big brokers like Vanguard and Fidelity have similarly moved to make trades cheaper (although they seem to be holding out for now on eliminating commissions entirely), while investing startups like Robinhood, with its free-trading platform, have ramped up pressure on big firms to do the same.

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