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BofA to Give Free Stock Trades to Some Clients

The Net-only offer hurts the stocks of Web-based brokerages, but they might not follow suit.

October 12, 2006|Walter Hamilton | Times Staff Writer

NEW YORK — Shares of online brokerage firms sank Wednesday after Bank of America Corp. said it would offer free Internet stock trades to many of its banking customers.

Clients with at least $25,000 in deposits will get up to 30 free trades a month, the bank said. Launched Wednesday in the Northeast, the program will be expanded across the country and is expected to be available to California customers by February.

Analysts hailed it as a great deal for investors, but the news rattled brokerage-firm shareholders, who feared a price war in an industry that has struggled to regain its footing after the late-1990s market bubble burst.

Online trading volume has fallen sharply since then, and brokerages such as San Francisco-based Charles Schwab Corp. no longer rely on trading commissions as their primary revenue source.

Nevertheless, industry profits have been crimped in recent years by a series of price wars that have lowered commissions to an average of about $10 a trade.

On Wednesday, shares of TD Ameritrade Holding Corp. plunged $2.28, or 12%, to $16.82 and E-Trade Financial Corp. tumbled $2.15, or 9%, to $22.31.

Schwab shares fell 84 cents, or nearly 5%, to $17.22. The company, which recently cut its commissions to as low as $9.95, said its fees won't budge.

"We don't have any plans to change our pricing at this time," founder Charles Schwab said in a statement.

Other electronic brokerages probably won't match BofA's offer because commissions are already so low, said Madhavi Mantha, an analyst at Celent, a Boston-based financial-industry research firm. Instead, she thinks the firms will gamble that inertia can keep customers in place.

"It's a big deal to move all your investments from one place to another," Mantha said. "Most customers won't go to the trouble."

Bank of America's move illustrates how financial firms are encroaching on one another's turf to broaden their businesses. Mantha believes one of BofA's primary motives is to retain customers that it risks losing to brokerages, which are rolling out banking services.

BofA also hopes to lure new customers to whom it can sell other services, such as loans and financial advice.

"We hope that customers who don't do business with us will recognize the breadth and depth of services we offer," said Tim Maloney, president of Banc of America Investment Services.

"There is no question but [that] this is a great deal for customers," Richard X. Bove, an analyst at Punk, Ziegel & Co., wrote in a note to clients.

Bank of America shares slipped 59 cents to $54.04 on what was a mixed day for banking stocks, with the newly released minutes of the latest Federal Reserve meeting suggesting that interest rates will not be cut in the near future.

BofA, the nation's largest bank, is the second firm to announce free stock trading services this week.

Zecco Holdings Inc., a year-old upstart based in Ontario, Calif., began offering free trades Monday to investors who maintain $2,500 in their accounts.

Like other online brokers, Zecco earns revenue from investors with margin accounts, who borrow the brokerage's money to buy stock. Zecco also charges for options trades and sells ads on its website, founder Jeroen Veth said.


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