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Bank offers free stock trades

Bank of America will give 30 free trades a month to those with at least $25,000 on deposit.

By HELEN HUNTLEY
Published October 12, 2006

Don't like paying $10 to trade a stock? How does free sound?

Bank of America began offering free online stock trades to some customers Wednesday, escalating an already fierce price war in the online brokerage business.

The bank isn't alone. Upstart Zecco Holdings passed out free hotdogs on Wall Street Monday and Tuesday to draw attention to the launch of its own free trading deal.

Other online brokers probably will have to follow suit, said analyst Thomas Kaylor at CRT Capital Group in Stamford Conn. Investors had the same thought Wednesday and sent shares of E*Trade Financial, TD Ameritrade and Charles Schwab Corp. down 5 to 12 percent.

Bank of America's securities unit, Banc of America Investment Services, had been charging $5 to $10 to trade online, already down sharply from the $19.95 price in effect last year. Its new offering is 30 free trades a month to customers with at least $25,000 on deposit at the bank. The deal currently is available only in the Northeast, but will be rolled out to Florida and the rest of the nation early next year.

Bank of America said about 52-million Americans have enough assets to qualify.

"This is the final step in a multi-decade evolutionary process in the brokerage industry," said Brian Moynihan, president of Bank of America Global Wealth & Investment Management.

Commissions have fallen as improved technology has made trading cheaper. A brokerage firm's average cost for a transaction is now about $2, said Zecco founder Jeroen Veth. Zecco and Bank of America are willing to absorb that cost to attract and retain customers, much the same way a grocery store might sell milk below cost.

The theory is that they will make money on other products and fees and on the interest rate spread, the difference between what a bank or brokerage pays on deposits and what it earns on loans and investments.

Zecco is giving 40 free stock trades a month to anyone with at least $2,500 on deposit. It charges for options trading and hopes to offer other moneymaking financial services such as credit cards. Ultimately its goal is to make zecco.com a networking site for traders, attracting advertisers.

Other banks and brokerages weren't announcing their plans Wednesday, but they were taking note.

"We intend to remain competitive," said Teresa Dougherty, spokeswoman for Wachovia Securities. She said prices are under review along with other aspects of the company's brokerage business. "I'm sure E*trade, Fidelity, and everybody is looking into it."

However, E*Trade chief operating officer Jarrett Lilien was not impressed by Bank of America's announcement.

"People distrust things that are free, and when they do the math they'll realize that when you pay nothing, you get nothing," he said.

Raymond James analyst Michael Vinciquerra said in a note to clients that investors care about more than trading fees. "Ultimately, customers will choose their broker based on functionality, speed, trade execution and trust," he said.

Bank of America made a similar bold move four years ago when it dropped online banking fees from $5.95 a month to zero. Other banks followed and free online banking is now the standard.

Information from Times wires was used in this report. Helen Huntley can be reached at hhuntley@sptimes.com or 727 893-8230.

[Last modified October 11, 2006, 23:33:14]