Stock Watch: E*Trade, Ameritrade Downgraded

Is the battle for supremacy among online brokers becoming too costly? Lehman Brothers thinks so. Lehman Brothers downgraded both E*Trade (Nasdaq: EGRP) and Ameritrade (Nasdaq: AMTD) to outperform from buy on Friday, voicing concerns that the cost of acquiring new customers is getting increasingly expensive.

Shares of E*Trade fell 1-13/16 to 25-15/16 on Friday, while shares of Ameritrade tumbled 1-7/16 to 21-5/16. Other online brokers also struggled. National Discount Brokers (Nasdaq: NDB) closed down 1-3/4 to 34-1/2, and Charles Schwab (NYSE: SCH) fell 1-7/8 to 41-1/4.

With so many players in the market, the cost of getting new customers is just one of many concerns. For one, increased competition has meant lower commissions and lower profit margins. In addition, the emergence of after-hours trading means a lot of brokers are or will be investing money into adding this feature. The return on investment, however, is quite uncertain because it’s unclear how big of a market there really is for after-hours trading.

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