(Adds CEO comments on stock price and outlook)
By Jed Horowitz
NEW YORK, April 23 TD Ameritrade Holding Corp
, the biggest U.S. discount broker, said profit in its
fiscal second quarter jumped 34.7 percent to $194 million on
record revenue driven by net new client assets of $12.2 billion
and heavy trading.
The profit translates to 35 cents a share, also up 35
percent from the year-earlier quarter and consistent with the
forecast of analysts tracked by Thomson Reuters I/B/E/S.
On a conference call with analysts, Chief Financial Officer
William Gerber said the firm expects earnings per share for the
firm's fiscal year, which ends on Sept. 30, to hit or beat the
high end of its earlier projections of $1.20 to $1.40. In the
first six months, TD Ameritrade has generated earnings of 70
cents a share, up from 53 cents in the comparable 2013 period.
Fred Tomczyk, the company's chief executive, told Reuters
that it's unrealistic to expect customer trading to continue at
the elevated levels of the just-ended quarter, however, in part
because the social media, biotech and other technology stocks
popular with TD Ameritrade's customers are declining.
On the conference call, Tomczyk criticized the knee-jerk
reaction to Michael Lewis's new book "Flash Boys," which says
markets are rigged in favor of super-automated, high-frequency
TD Ameritrade and other discount brokerage firms sell most
of their customer trades to selected market-makers for
execution, leading to concerns from investors that Lewis's book
may spur regulators to curtail their lucrative "payment for
order flow" practice.
TD Ameritrade and other discounters' stocks fell by more
than 10 percent after Lewis's book was published on April 7,
though they have recovered much of the decline.
Tomczyk said the company will never sacrifice its duty to
seek the best execution for clients even as it extracts profit
for shareholders from the flood of client orders professional
traders use to guide their own trading, and that exchanges want
to ensure liquidity.
"We're not anticipating because a book's been written that
payment for order flow is going away," Tomczyk said. TD
Ameritrade customers appear unconcerned about the book, he said,
noting the company received only 70 phone calls and 112 emails
asking questions about the book and payment for order flow. The
company ended the quarter with 6.15 million funded accounts, up
from 5.88 million one year earlier.
The Omaha, Nebraska-based company said average client trades
per day, fee-based investment balances and total client assets
all hit record levels during the quarter that ended on March 31.
Retail investors are "increasingly bullish" about stocks in
general, Tomczyk said, and in the first three months of the year
made an average of 492,000 trades a day at TD Ameritrade, up 30
percent over last year. The trading also elevated customers'
highly lucrative margin borrowing, while cash balances fell to
14.8 percent of their accounts from a more typical range of
The margin lending led to a higher-than expected net
interest margin of 1.52 percent, Christopher Harris, an analyst
at Wells Fargo Securities wrote in a note to clients. Pretax
profit margin, a measure of how much revenue falls to the bottom
line before tax, rose for the entire firm to 39 percent from 34
percent one year earlier.
The margin was down slightly from the last three months of
2013, in part because advertising expenses rose 24 percent to
$94 million due to TD Ameritrade's sponsorship of the Winter
Olympics. Gerber said expenses should return to more normal
levels the rest of the year.
Trading activity this month has fallen slightly but should
remain high because many TD Ameritrade's customers become active
when markets are volatile. The S&P 500 index rose or fell 1
percent or more on 25 days during the quarter versus just 12
days in the same period of 2013.
TD Ameritrade expects volatility to continue this year due
to the Federal Reserve's tapering policy of reducing its bond
volume and other fiscal policies, Gerber said.
Clients also are making many more of their trades through
cellphones and other mobile devices. Mobile orders averaged 13
percent of the firm's daily total, up about 50 percent from last
Tomczyk also said the broad U.S. economy continues to slowly
recover, a trend that encourages more retail investors to trade.
TD Bank Group, the parent of Toronto-Dominion Bank
and TD Ameritrade's largest shareholder with a 40 percent stake,
said TD Ameritrade's results should contribute about C$78
million to its yet-to-be-reported second-quarter net income. The
bank sold some shares during the quarter but has the contractual
ability to own as much as 45 percent of the broker-dealer.
Shares of TD Ameritrade, which have jumped 75 percent over
the past 12 months, including reinvested dividends, fell as much
as 2 percent to $32.10 in early morning trading on the New York
Tomczyk said investors were likely taking gains after a 3
percent rise in the share price on Tuesday on expectations TD
Ameritrade would have a strong quarter. He also said it's fair
to characterize the often-volatile stock at the moment as fully
During the call he said the company expects to continue
using surplus cash to raise dividends but has no immediate plans
for stock buybacks. TD has to be cautious about buybacks that
could bring TD Bank's holdings closer to the 45 percent level,
he told Reuters.
(Reporting By Jed Horowitz; Editing by Clive McKeef and