E*Trade / Ameritrade

A desire to cut costs amid falling trading volumes could be behind the reported merger talks between the nation's largest online stock brokerages, analysts say.

Citing unnamed sources, The New York Times reported in its Monday editions that E-Trade Financial Corp. made an unsolicited bid to buy Omaha-based Ameritrade Holdings Corp. for more than $5.5 billion. The offer was made Friday, even as Ameritrade has been holding secret negotiations to buy a third brokerage, TD Waterhouse, the Times and the Wall Street Journal reported.

A spokeswoman for Ameritrade told The Associated Press on Monday that the company would not comment on the report.

Following the reports, Ameritrade shares soared 19 percent, or $2.16 a share, to close Monday at $13.47 on the Nasdaq Stock Market.

Matthew Fischer, an analyst with IRG Research, said that in a climate of declining trade commissions and dropping trade volume, a merger would make sense for investors.

"You can get rid of some of the operations and some of the marketing costs and just throw more trades down your existing pipeline," Fischer said. "It enables them to keep reasonably good margins in a revenue-per-trade environment."

While investors might like the idea of consolidation, those who control Ameritrade -- like chairman J. Joe Ricketts and the Ricketts family -- might not, Fischer said.

"Ameritrade wants to maintain control of the company in any type of merger. This could pose a problem going forward," he said. "At the end of the day, it comes down to ... how much control the Ricketts family will be willing to cede in being acquired."

Matthew Snowling, a financial analyst with Friedman, Billings, Ramsey Group Inc. in Arlington, Va., said soft trading volume is a factor in any merger or takeover attempts, but said consolidation of online brokerages just makes sense for investors in the long run.

"I think we're heading in one direction here, and that's change," Snowling said. "They can combine with E-Trade or work to expand on their own, but they can't do nothing. There's too much capacity in this industry."

Ameritrade reported last month that its second-quarter profit slipped 12 percent to $71 million -- or 17 cents a share -- as trading volume fell sharply. Earnings for the same three-month period in 2004 were $81 million, or 19 cents a share.

Ameritrade had an average of 167,209 client trades per day during its first quarter, a decrease of 21.1 percent from 211,917 average daily trades the year before. The company also saw a drop in trading in the October-December quarter, which saw an average of 171,000 trades per day.

Shares of E-Trade rose 74 cents a share to $12.67 by the close of trading on the New York Stock Exchange.

Representatives for New York-based E-Trade declined to comment to The Times. The Times said a spokesman for TD Waterhouse, which is based in New York, could not be reached for comment. TD Waterhouse is owned by The Toronto-Dominion Bank.