DeGiro commercialMonday was the day of the Dutch retail brokers. Binck was about to release their third quarter earnings. Their friends at DeGiro steal the opportunity to grab the spotlight and get free publicity. Successful.

DeGiro reported three numbers. The number of accounts, the number of transactions and the profit for the firm. They compare the first nine months with the same period last year. I take a look at quarter on quarter. That’s less impressive.

Accounts, not trades

The best news for DeGiro is the strong growth in accounts. It’s growing in double digits, every quarter. From 112.000 accounts to 128.000 is a growth of 14%.

The downside is, the activity from the new accounts is limited. There are a few reasons for this. First, investors outside the Netherlands seem to trade less. Second, the most active investors already joined DeGiro. The less active investors are slower to move. And finally, it’s fast and easy to open an account. There will be a lot of ghost accounts created, without any money nor trade history.

Marketing expenses

The transactions grew with only 2,8% to 2,3 million. The first two quarters, the transactions were the same. Internalized trades are included in this number. While the brokerage accounts are up 28% since the first quarter, the transactions hardly saw any growth at all this year. That’s worrisome in this stage.

The reported profit performed worse than staying flat. DeGiro lost €350.000 in the third quarter. That’s after a profit of €500k in the second and €1.3 million in the first quarter. No outside investors, so not duty to report in a structural fashion. It’s a landgrab for new clients. Half of the customers are from outside of the Netherlands.

Two-factor DeGiro

Safety is always a concern, when there’s money involved. DeGiro introduced the possibility to add two-factor authentication. In the app you can login without two-factor safety. That makes the safety rather silly. Don’t tell the Russians about it. At least accessing your account with a password manager is possible now.

Binck in downward spiral

No freedom in reporting for Binck. The broker reported a €6,7 million profit. Down 13% compared with the second quarter. The root of the problem is the declining number of transactions. With 1.75 million transactions, this number decreased with 5% compared with the previous quarter (press release). This is more or less as expected, the stock edged a bit higher.

Transactions X 1000

Marketing for nothing

Interesting, the first quarter’s press release was the last one where Binck released the number of brokerage accounts. It’s hard not to see this as a reaction to DeGiro. In the excel file you can still find there are 2572 new accounts. The marketing budget is estimated at €3 million. Costly new customers.

This also shows the limited meaning of brokerage accounts. Almost four times more brokerage accounts than DeGiro (482k versus 128k), but 30% more transactions for DeGiro. The number of accounts is a one-way traffic. Clients leave, withdraw their money but have no reason to ever close down the account. It would be interesting to discover how many deserted accounts exist at Binck, without any assets.

Asset management loses assets

No matter the marketing budget, there will be no more growth in the execution only business of Binck. The asset management part (Alex Vermogensbeheer) is shrinking as well. In a quarter where the market went up with 4%, the assets under management decreased with 4%. It’s safe to expect around 8% of the investors headed for the exit. The other possibility, strong underperformance, sounds a bit far-fetched.

Transformation for Binck

Apart from firing the CFO for neglecting his duties with the AFM, and ignoring multiple warnings, it’s hard to say how Binck should steer out of this downward spiral. Unless DeGiro does something stupid, the battle for plain brokerage business is lost. The company should re-invent itself for the second time. The first time in 2006, prop trader AOT transformed into a broker.

Maybe they can pull the same trick again. They can still transform into an exchange.