How E*TRADE Financial Could Benefit from Rate Hikes in 2018



Recent rate hike

At the March 2018 meeting, the Federal Reserve announced a rate hike of 25 basis points, as market participants had expected. The brokerages (XLF) are expected to benefit from rate increases, which would improve their interest income. According to E*TRADE Financial Corporation’s (ETFC) annual report, of the total net revenues generated in 2017, more than 62% constitutes net interest income.

However, in 2017, the net interest income as a percentage of total net revenues for peers The Charles Schwab Corporation (SCHW) and Interactive Brokers Group (IBKR) is 50% and 40.12%, respectively. So, if the Federal Reserve raises interest rates, these companies are expected to benefit more. Relatively, TD Ameritrade Holding Corporation’s (AMTD) net interest revenue as a percentage of total net revenues is less, at 18.77%.

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More hikes in 2018

The Federal Reserve is expected to raise interest rates three times in 2018, which would improve revenues for E*TRADE Financial. Moreover, in the 4Q17 earnings presentation, the company stated that it would further make efforts to improve its business.

E*TRADE would be improving customers’ experience by providing advanced solutions. The company also focuses on increasing its market position as well as customer acquisition. It’s expected to benefit from its corporate services channel. So these measures would help it grow organically.


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