* Low rates curb opportunity to profit from mergers -Tomczyk
* Balance-sheet issues still weigh on E*Trade
* Privately held Scottrade not interested in selling
By Jed Horowitz
NEW YORK, Dec 5 TD Ameritrade Holding Corp
Chief Executive Fred Tomczyk cast cold water this week
on recurrent rumors that the discount brokerage is pursuing a
deal to buy Scottrade Financial Services or E*Trade Financial
"There's two obvious ones that people ask me about, but one
is privately held. The individual is not interested," Tomczyk
said at a Goldman Sachs conference Tuesday when asked about big
acquisition opportunities. "The other one still has some balance
sheet issues to work through."
Tomczyk did not identify the firms. Analysts, investors and
a person close to TD Ameritrade said they were certain that the
firms Tomczyk was referring to were Scottrade, whose biggest
shareholder remains its founder, Rodger Riney, and E*Trade.
A spokesman at E*Trade declined to comment. A Scottrade
spokeswoman did not return calls for comment.
E*Trade, which expanded beyond discount brokerage into
selling mortgages and other consumer loans through an online
bank more than a decade ago, has suffered years of losses since
the financial crisis. In an indirect reference to E*Trade,
Tomczyk said its home equity loan book remains problematic.
Citadel LLC, the hedge fund that is E*Trade's biggest
shareholder, pressed directors in 2011 to sell the firm after
"nearly four years of value destruction and lost opportunity."
E*Trade has whittled its ailing loan portfolio by billions
of dollars, but in October reported an unexpected third-quarter
loss that signaled to investors that credit remains a problem.
Tomczyk's pessimism went beyond E*trade to acquisitions in
general. When interest rates are so low, "revenue synergies"
don't exist, he said, adding that TD Ameritrade is not having
"concrete discussions" with anyone.
The real gold in merging discount brokers lies in moving
client cash out of money-market funds into bank accounts and
investing it at a profit, according to Tomczyk. That can't be
done when rates are close to zero and the yield curve is
"It makes transactions harder to do unless you're willing to
stand back and say, 'In the long term this will work out,'" he
TD Ameritrade, whose major shareholder is Tomczyk's former
employer, TD Bank, burgeoned through much of the
previous decade through purchases of other brokers and
businesses. The Omaha, Nebraska-based firm has not made a large
purchase since buying options broker Thinkorswim Group in 2009
for more than $600 million.
"Some people would say, 'Well you're not investing, you
can't keep that growth up,'" Tomczyk said. "I can tell you we
TD Ameritrade had $915 million of cash as of Sept. 30 that
it is deploying in hiring salespeople, improving technology and
expand into the retirement brokerage business. It also is
supplementing its equities-heavy menu with access to potentially
higher-yielding - but riskier - products such as futures and
foreign exchange, Tomczyk said.
Known primarily for appealing to active, self-directed stock
investors, the firm booked 40 percent of its trade volume last
quarter from options, futures and foreign exchange transactions.
It also is using cash to salve shareholder issues. TD
Ameritrade, which did not pay a dividend until 2010, has raised
its 2013 quarterly payout by 50 percent to 9 cents per share.
Agreements with TD Bank and the Ricketts family, the founders of
TD Ameritrade, restrict the company from doing more share
buybacks that would push the bank into a majority shareholder.
Tomczyk said TD Ameritrade has not been able to get either
of its principal shareholders to amend their agreements.
Shares of TD Ameritrade closed up 0.6 percent to $16.25 on
Wednesday. Shares of E*Trade finished up 2.0 percent at $8.54.