NEW YORK TD Ameritrade Holding AMTD.N sees little opportunity to buy other companies with its ample cash but will likely return some of it to shareholders in the form of dividends in the next few months, Chief Executive Fred Tomczyk said.
The Omaha-based discount brokerage, an active acquirer of discount options, stock brokerage and related technology firms in the past ten years, had $1.2 billion of cash and cash equivalents on its balance sheet at the end of March.
TD Ameritrade has no product gaps it needs to fill through acquisitions, and knows of only two discount brokerages it could buy that are large enough to make a difference, Tomczyk said at the Reuters Global Wealth Management Summit on Wednesday.
One "doesn't make economic sense" and the other is not for sale, he said. He did not name the firms but did not dispute that he was referring respectively to E*Trade Financial (ETFC.O), which recently installed a new management team, and Scottrade, Inc.
At an investors conference on Thursday sponsored by Sandler O'Neill & Partners, Tomczyk said it remains hard to see how any acquisition would drive much revenue growth in the current environment despite a slowly improving economy.
At the same conference, Paul Idzik, who in January became E*Trade's seventh chief executive since late 2007, said he is "ruthlessly focused" on repairing the firm's balance sheet and capital while overseeing a more client-focused new management team he recruited to run its core brokerage business. He declined to answer questions about sales or acquisitions.
Tomczyk, turning to TD Ameritrade's cash reserves, said on Wednesday the firm will continue to harbor cash to buffer its balance sheet against unexpected events and return some to shareholders in the form of dividends or stock buybacks.
The buyback option had been off-limits for the brokerage firm because of an agreement with the firm's founding Ricketts family and Toronto Dominion Bank (TD.TO), its largest shareholder. The pact limits the Canadian bank's ownership to 45 percent of shares outstanding, and a buyback would have nudged the stake higher than that.
The bank, however, sold 15 million TD Ameritrade shares last month, lowering its stake in the U.S. brokerage to 42.4 percent from 45 percent.
"TD gave us room," Tomczyk told Reuters, and the brokerage's board has authorized buybacks of up 24.9 million shares.
He would not comment on whether a buyback is currently in the works but in a video interview with Reuters Insider he said TD Ameritrade will continue to focus on dividends for the rest of this year.
One concern about a stock buyback may be that the firm's shares have become more expensive, soaring about 60 percent since the start of its fiscal year in October and 33.7 percent since January. In afternoon trading on Thursday, they were up 2.1 percent to $22.97 per share.
Tomczyk said at the Sandler conference that he believes the stock is still "a good buy as long as you are a long-term investor."
TD Ameritrade is studying how to deploy its excess cash and will announce the decision in the fall, he said.
The brokerage firm also announced Thursday morning that its clients traded an average of 417,000 revenue-producing trades in May, up 9 percent from April. It was the highest volume in 20 months, but Tomczyk remains cautious.
"There is definitely more activity in the markets," he said at the Sandler conference. But he warned there are only "very weak signs ... of a great rotation" back to stock investing from bonds or cash that some analysts believe is occurring.
In its second fiscal quarter ended March 31, TD Ameritrade reported a 5.1 percent profit gain from a year earlier to $144 million, or 26 cents a share. Its net revenue grew 0.9 percent to $679 million, but trading-related commissions and transaction fees fell 1.7 percent to $287 million.
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(Editing by Chris Reese)