PREVIEW-Online brokerage profits get fleeting boost

* Short-term outlook seen weak, long-term outlook improves* Firms begin reporting next weekBy John McCrankOct 14 (Reuters) - As U.S. stock markets plunged this summer, one group of companies made hay: retail brokerages.With trading volumes soaring, per-share earnings for companies such as TD Ameritrade Holding Corp could rise 55 percent, according to the average forecast from Thomson Reuters I/B/E/S.The companies that should perform best are those that rely most on trading revenue, said Michael Wong, an analyst at Morningstar in Chicago.TD Ameritrade, where last quarter trading revenue made up around 40 percent over overall revenue, would likely fare better than a company such as Charles Schwab Corp , where trading revenue is around 20 percent, Wong said.E*Trade Financial Corp , like TD Ameritrade, is also likely to turn in a strong performance because of its heavy exposure to trading, said Joel Jeffrey, analyst Keefe, Bruyette & Woods in New York.Schwab kicks off the earnings period for the retail brokerages on Monday, followed by E*Trade and Raymond James Financial Inc on Wednesday. TD Ameritrade reports the following week, while Stifel has yet to announce a date for its earnings release.Strong results for brokers would stand in stark contrast to institutional broker-dealers such as Goldman Sachs Group Inc , whose results were likely hurt by market drops. JPMorgan Chase & Co said on Thursday investment banking fees fell 31 percent. Its trading revenue rose because of an accounting quirk.Markets were riled in the quarter ended Sept. 30. Political gridlock over raising the U.S. borrowing limit pushed the United States to the brink of a debt default, the U.S. credit rating was downgraded and the sovereign debt crisis in Europe threatened to send the global economy back into recession.In August, that turmoil prompted TD Ameritrade’s clients to make an average of 484,000 trades per day, well above the usual 380,000 to 400,000 range for that time of year.”Four of our top five trading days in our history were in that month,” TD Ameritrade Chief Executive Fred Tomczyk said at the Reuters Global Wealth Management Summit in New York in early October. “One day we were just under 900,000 trades.”SHORT-TERM PAIN, LONG-TERM GAINWhile trade volume was strong over the course of the third quarter, the two other main revenue sources for retail brokers — fees on assets and interest revenue on client cash — likely suffered as interest rates and markets fell, said Ed Ditmire, an analyst at Macquarie Research in New York.”Overall, two of the three important revenue generators for the brokers were working against them and continue to do so into the fourth quarter,” he said.The near-zero interest rate environment has led some retail brokerages to waive fees on money market funds, which has cost hundreds of millions of dollars.It has also put a big dent in their share prices. A 14 percent drop in U.S. equities in the third quarter, as measured by the S&P 500 index, added to the pain.Schwab’s stock fell over 31 percent in the quarter, while TD Ameritrade was down nearly 25 percent, E*Trade around 34 percent. Raymond James and Stifel, full-service firms with large retail brokerage units, were down around 19 percent and 26 percent, respectively.A meaningful increase in interest rates, not expected any time soon, would be a boon to retail brokerages, especially asset managers such as Schwab, Wong said.As of Oct. 14, analysts polled by Thomson Reuters I/B/E/S were expecting Schwab to have earned 19 cents a share, up from 10 cents a share a year earlier.TD Ameritrade is expected to earn 31 cents a share in its fiscal fourth quarter, compared with 20 cents, and E*Trade is forecast to earn 18 cents a share, compared with 3 cents.Raymond James and Stifel are forecast to earn 55 cents a share and 43 cents a share, compared with 55 cents and 48 cents, respectively.