NEW YORK TD Ameritrade Holding Corp's CEO wants to put his cash to work and will even entertain a deal involving smaller rival E*Trade Financial Corp under the right circumstances.
An acquisition involving a fellow online broker is the best use of the company's hefty cash cushion, Fred Tomczyk told the Reuters Global Finance Summit in New York on Wednesday, adding that it would be prudent to eventually pay a dividend.
The comments prompted a more than 7 percent jump and a flurry of options activity in E*Trade shares, which closed at their highest level in a month. TD Ameritrade shares climbed less so after the report.
The company, an aggressive acquirer in the last few years, has about $1.4 billion of corporate cash. Management has said it is considering an acquisition, dividend, or share buyback.
Asked whether TD Ameritrade would consider a deal involving E*Trade -- a company troubled by the mortgage crisis but now starting to recover -- Tomczyk said: "We'd be interested but it has to be on the right terms with the right structure. We have a very clean balance sheet, so we don't want to buy a bunch of problems.
"The best deployment of our cash would be in a transaction, but you have to see the opportunity to have a transaction that makes sense," Tomczyk added. "With the kind of cash we're generating on a consistent basis, at some point a dividend I think is a prudent thing to do."
While TD Ameritrade logged a string of quarterly profits throughout the financial crisis and record trading activity in the last quarter, E*Trade has reported nine straight quarterly losses.
Some see E*Trade as a takeover target. Its troubles stem from loans its bank made earlier this decade in the real estate market, leading to delinquencies and charge-offs in 2008 and 2009.
But New York-based E*Trade has aggressively raised capital this year, and its chief executive said last month it expects to steal market share from "old traditional brokers" in the long run.
"E*Trade's board of directors and executive management team review any and all business opportunities in the best interests of its customers and shareholders," an E*Trade spokeswoman said in an email. "The company does not comment on marketplace speculation."
Richard Repetto, an analyst at Sandler O'Neill, said E*Trade's "exit strategy is definitely to sell the company," adding Tomczyk's comments were consistent with what he has said in the past.
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TD Ameritrade acquired options-focused online broker thinkorswim Inc in June. In 2006, it acquired the U.S. brokerage business of TD Waterhouse Group, and Toronto Dominion Bank is now its largest shareholder.
Tomczyk, who became CEO last year, said management wants to "think this through a little more carefully" before deciding what to do with its capital, stressing any additional deal must make strategic and financial sense.
The Omaha, Nebraska-based company does not currently pay a dividend.
Tomczyk added that, for now, the company would not ramp up its exchange-traded funds business, following Charles Schwab Corp's launch this month of a line of index-tracking ETFs. ETFs are similar to index-tracking mutual funds but trade in real-time on exchanges.
San Francisco-based Schwab, the largest U.S. online brokerage, said its own customers can trade the new funds commission-free online, and said more products are on the horizon.
"We'll let this play out and we'll watch it very carefully -- and we'll respond if we have to," Tomczyk said. "To this point, and it's still early, we haven't seen an impact on us."
In April, a TD Ameritrade unit filed with the U.S. Securities and Exchange Commission to manage ETFs on its own, prompting speculation the firm might be about to expand its presence in the fast-growing industry.
"We've toyed with our own target date ETFs and ETF products," Tomczyk said. "I don't see us going any further with the target date ETFs at this point."
E*Trade shares jumped 7.6 percent after the report, closing the day up 9 percent at $1.69. TD Ameritrade shares added 0.8 percent after the report, closing down 1 penny at $21.26.
"E*Trade shares spiked up in afternoon trade as investors reacted to a Reuters report that Ameritrade CEO discussed the possibility of a deal with the online broker," said WhatsTrading.com option strategist Frederic Ruffy.
"E*Trade options attracted a flurry of option activity as a total of 51,000 calls traded, which is more than five times the number of its put options and three times the average daily call volume for the stock," Ruffy said.
(Additional reporting by Doris Frankel in Chicago; Editing by Tim Dobbyn, Steve Orlofsky, Phil Berlowitz)