* 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 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
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
"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
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,
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
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
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.