Stocks of eBrokers have plunged in the aftermath of last week’s terrorist attacks.
Even before last week’s atrocities, the volume of retail trading was stagnant as news on the economic and corporate outlook had been pretty bleak. Since the attacks, investors’ confidence in the markets has been damaged even more. Most are now expected to suspend activity and stand on the sidelines for at least the next few months.
As a consequence, stocks of online brokerages, both in the US and in Europe, are taking a severe beating. The stocks of Europe’s biggest eBrokers – DAB, Comdirect and Consors – for example, have tumbled to lifetime lows as profits from the buying and selling activities of retail investors look set to dry up.
The improvements in the market once predicted for late 2001/early 2002 are now less likely, building the pressure on these brokerages. The German big three are expected to post a loss for FY2001. Charles Schwab, the US’ largest online and discount brokerage firm, has announced that it will double the number of job cuts this year.
Of course, market uncertainty is nothing new. But last week brings home the fact that unexpected incidents, however rare, cannot be ignored. Some of Europe’s eBrokers have responded to the attacks in the US by posting information on their sites to address investors’ concerns. Yet while this is well intentioned, giving such information may actually escalate panic. In any case, information posting alone isn’t going to protect anyone from the fallout of the tragedy; more extensive measures are needed.
The most obvious is consolidation, since the business is highly scale-dependent. However, the major brokers’ low stock prices and limited cash will limit their ability to make acquisitions. The likeliest predators will be the major banks that already have the financial resources, technological capabilities and product portfolio to complement trading activities. They are ideally placed to effectively consume a large part of the industry, and withstand the kind of shocks that were felt in the last week.
