Charles Schwab Corp (SCHW), TD Ameritrade Holding Corp. (AMTD): Sizing Up the Discount Brokers

E*Trade certainly won the advertising wars with its lovable baby trader, but not much else has gone right lately. The company almost went bankrupt during the financial crisis, ultimately surviving due to a large capital infusion by Chicago-based hedge fund Citadel. E*Trade’s troubles stemmed from its ill-timed, highly leveraged move into the home lending market, a problem area that management hopes will dissipate with the passage of time.

In FY2012, the company reported mixed financial results, with a 7% decline in revenues and a 6% gain in operating income. The company’s top-line was hurt by its customers’ weak trading activity and its lack of a presence in the professional advisor segment. While E*Trade’s operating margin improved significantly, due to a reduction in loan loss provisions, half of its $10 billion in home loans have a 100% loan-to-value ratio and may create further trouble down the road. Citadel may see value in E*Trade, but the company will be hard-pressed to catch its larger competitors.

The discount brokers had their day in the sun, but their core businesses are currently weathering difficult times. While Charles Schwab Corp (NYSE:SCHW) has the best industry position, with its 300 branches and multiple revenue streams, all of the firms are struggling to find growth in the current environment. Until the Federal Reserve changes policy, investors would be well-advised to move on.

The article Sizing Up the Discount Brokers originally appeared on Fool.com.

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