* Quarterly profit, revenue beat Wall Street expectations
* Average daily client trades rose 12 percent
* Revenue up 9 percent to $725 billion
* Shares up almost 4 percent
By Jed Horowitz
July 23 (Reuters) - TD Ameritrade Holding Corp posted a 19.5 percent rise in quarterly earnings, as interest revenue and trading commissions at the discount brokerage firm beat Wall Street expectations.
The results surpassed analysts' estimates of profit and revenue, and drove TD Ameritrade shares up almost 4 percent in midday trading.
Investors and analysts were impressed by a 5 percent increase in net interest revenue from the prior quarter, despite continuing low interest rates. They also applauded a 12 percent year-over-year jump to an average of more than 399,000 client trades a day, making the latest quarter the firm's most active in almost two years.
Chief Executive Officer Fred Tomczyk was nevertheless cautious about retail investors' enthusiasm about moving from cash and bonds into stocks. An anticipated "great rotation" into equity mutual funds and exchange-traded funds is at best a "mini rotation," he said on a conference call and in an interview with Reuters.
"I can't predict when investors will change their view," he said. "The memories of the Great Recession are still fresh in a lot of people's minds."
Trading at the biggest discount broker by volume surged in May as active traders tried to take advantage of volatile markets, but has slowed down thus far in July, reflecting duller markets and seasonal summer slowness, Tomczyk told Reuters.
Cash in client accounts at the end of June rose to $85.8 billion from $83.6 billion three months earlier, representing 16.4 percent of total assets. In early 2009, in the depths of the financial crisis, cash was 23.3 percent of clients' assets.
TD Ameritrade's profit rose to $184 million, or 33 cents per share, in the fiscal third quarter that ended June 30 from $154 million, or 28 cents per share, a year earlier. Competitor Charles Schwab Corp last week said quarterly earnings fell 7 percent.
Analysts were expecting net income of 31 cents per share, according to Thomson Reuters I/B/E/S. They also underestimated TD Ameritrade's revenue, which rose 8.6 percent from a year earlier to $725 million, beating the forecast of $705.8 million.
Expenses rose 3.4 percent to $427 million from a year earlier on higher occupancy costs as TD Ameritrade moved its Omaha, Nebraska-based headquarters and paid higher clearing costs because of the trading boom.
The company will deploy some of its profits to hire more 50 to 100 more salespeople in its branches this quarter to focus on its fastest-growing businesses - selling fee-based products to investors and referring wealthy people to independent advisers who use its services, Tomczyk said. TD Ameritrade has more than 800 branch salespeople today, up from about 450 a decade ago.
The investment is justified because lingering fears about stocks have created "an advice-and-guidance market" that calls for help from salespeople and independent investment advisers, Tomczyk said.
TD Ameritrade gathered $11 billion of net new client assets last quarter. About 75 percent came from clients of investment advisers in the company's institutional business rather than from investors who directly use its branches and online services, he said.
Turning to another new trend, 10 percent of daily trades last quarter were generated on mobile devices.
"When you make it easier, people do engage more," Tomczyk said on the conference call. "Whenever somebody adds mobile, they are just more engaged. They trade more regularly."
TD Ameritrade also will spend more during the rest of the year to upgrade technology that has not kept up with accelerated volume, such as speeding up clients' ability to move money in and out of accounts, officials said.
After suffering for five years from low interest rates that produce tepid investment returns and forced it to waive hundreds of millions of dollars of client fees on money-market funds, TD Ameritrade appeared to turn a corner in the last quarter, executives said. Money that matures in the company's short-term investments is being reinvested at about the same, rather than a lower, rate.
TD Ameritrade is nearing, if it has not already reached, "trough" levels in reinvesting deposits and other cash, Chief Financial Officer William Gerber said on the call.
In one eyebrow-raising moment, Gerber said revenue from lending to clients in margin accounts remained low because they were not borrowing against their Apple Inc shares, whose price has declined about 19 percent this year.
"There is a big depletion in their buying power," Tomczyk told Reuters.
TD Ameritrade shares, up 56.4 percent this year before the market opened, rose 3.6 percent to $26.98 on Tuesday, more sharply than most financial stocks.