By Jed Horowitz
Jan 22 Quarterly profit at TD Ameritrade Holding
Corp fell 3.3 percent from a year earlier on low
interest margins and weak trading volume, but beat expectations
as the firm collected a record amount of new client assets.
TD Ameritrade, the biggest online broker by customer trading
volume, on Tuesday reported fiscal first-quarter profit of $147
million, or 27 cents a share, down from $152 million, or 27
cents, a year earlier.
The consensus estimate of 21 analysts compiled by Thomson
Reuters I/B/E/S was for 24 cents a share in the most recent
Shares of TD Ameritrade climbed 3.5 percent to $19.10 on
The better-than-expected report reflected strong expense
controls, torrid asset gathering and higher commissions per
trade, company executives said. Trading remained sluggish,
however, and net interest profit continued to be crushed by low
interest rates, they said.
TD Ameritrade, which declared a special dividend of 50 cents
a share last month, continued to struggle against low interest
rates that have hurt its ability to book gains on clients'
dormant cash, its executives said.
Like other discount brokerages, it has been forced to waive
money-market fees worth hundreds of millions of dollars annually
to ensure that clients do not realize negative returns.
NO TASTE FOR TRADING
Retail investors who trade at TD Ameritrade and other
low-commission online brokers have been cautious for most of the
past year, worried about the economy, the U.S. budget debate and
"Trading continues to be sluggish," Chief Executive Fred
Tomczyk said in a phone interview.
While active traders are still interested in stocks and more
risky options and futures, more conservative investors continued
to worry about political gridlock in Washington that could send
the economy and markets into a tailspin, he said.
TD Ameritrade is more reliant on commissions and other
investments from active traders than rivals such as Charles
Schwab Corp and E*Trade Financial Corp.
Its client activity rate, a measure of how many accounts
were trading, fell to 5.8 percent from 6.5 percent a year
earlier but was up slightly from the fiscal fourth quarter.
In another sign of investor fear, average client cash
balances at the end of 2012 reached $80.9 billion, the highest
in at least five years. In the fourth quarter of 2007, cash
balances were $45.2 billion.
The company ended 2012 with $472.3 billion in client assets,
up 7 percent from a year earlier. It collected $15.6 billion in
what it calls interest rate-sensitive assets in the last
quarter, bringing the total to $90 billion. That big balance
positions the company to book solid gains when rates rise, but a
rate hike by the U.S. Federal Reserve is unlikely for several
years, Tomczyk said.
In a positive sign, daily trades so far this month have
risen to an average of 370,000 from 334,000 in the previous
quarter. Tomczyk was moderately cautious about the jump, noting
that January trading is still below seasonal averages.
Partly in response to the prolonged period of low rates, TD
Ameritrade revised its fee agreement with Toronto-Dominion Bank
, its largest shareholder.
The brokerage will pay a lower management fee to the bank
for holding client cash in floating-rate bank accounts when
rates fall, and more on new deposits when rates rise.
The agreement lowers TD Ameritrade's fee to seven-and-a-half
percentage points from 25 currently, and should add $30 million
of net interest revenue to its bottom line this fiscal year, the
To offset lower trading revenue and net interest profits,
the company has been more aggressively pitching fee-based
advisory products, such as portfolios of mutual funds, to
customers. As a result, its fee-based balances climbed 28
percent last quarter from a year earlier.
TD Ameritrade plans to hire 100 new people in sales over the
next three quarters, executives said on a conference call with
Its business of servicing independent investment advisers
whose clients buy products and trade through the firm remains TD
Ameritrade's fastest-growing customer channel. It said 110
advisers joined the "institutional" platform during the quarter
from full-service brokerage firms, up 10 percent from last year.
Few of them were big hitters, however, because Morgan
Stanley, Bank of America Corp's Merrill Lynch and
other big brokerages have tweaked incentives for their best
advisers with very wealthy clients to prevent them from bolting
to firms that use discount brokers.
"They've become pretty good at keeping the big producers,"
Tomczyk said on the call with analysts, "and I don't expect that
Still, TD Ameritrade gathered a record $15.6 billion in new
client assets in the last three months of the year, up from
about $10 billion in the year-earlier quarter.
Rival Charles Schwab Corp earlier this month also
reported record asset gathering at the end of 2012.