June 20, 2012 / 6:02 PM / 7 years ago

TEXT-Fitch affirms Scottrade Financial Services IDR at 'BBB-'

June 20 - Fitch Ratings has affirmed Scottrade Financial Services, Inc.'s
(Scottrade) long-term Issuer Default Rating (IDR) at 'BBB-'. The Rating Outlook
is Stable. A full list of ratings is provided at the end of this release.

Fitch's rating affirmation is reflective of Scottrade's ability to continue to
adequately service its debt obligations, despite a challenging operating
environment, supported by a growing proportion of spread based revenue from the
company's continued expansion of its deposit business at Scottrade Bank.

Over the last year, Scottrade's earnings have been adversely impacted by lower
transaction based revenue, as daily average revenue trades (DARTs) have
significantly declined over the last three and six month periods. Transaction
based revenue had been further impacted by elevated competitive conditions in
the discount brokerage industry. This has caused the company's average revenue
per trade to also modestly decline, therefore further impacting earnings.

Given the trends noted above, Fitch expects Scottrade's earnings to remain
somewhat volatile over the near-to-intermediate term given the company's
sensitivity to stock market trends and the elevated competitive environment.
However, given that Fitch expects Scottrade to continue to be able to meet its
debt service obligations despite these earnings headwinds, the Outlook remains
Stable.

Due to Scottrade's lower earnings levels, leverage as measured by
debt-to-adjusted EBITDA increased to 3.55 times (x) at fiscal 1Q12, down from
3.67 (x) at fiscal 4Q11, but up from 2.14 times (x) at Sept. 30, 2011. Fitch
notes its adjusted EBITDA metric is annualized to calculate quarterly ratios.

Fitch believes Scottrade's leverage will remain elevated over the
near-to-intermediate term, and views it to be near the upper limits of its
rating category. Should the company's earnings level further decline or it need
raise additional capital to fund the planned growth in Scottrade Bank, leverage
metrics would be adversely impacted and ratings or Outlook could be negatively
impacted.

While the company's strategy to grow Scottrade Bank should help grow earnings
over time, Fitch also believes it is not without risks. The investment portfolio
is primarily a mix of U.S. government agency securities and asset-backed
securities backed by Federal Family Education Loan Program (FFELP) loans, the
latter of which now constitutes a more than a third of the investment portfolio.

Additionally, the company is looking to grow loans at Scottrade Bank. While this
could provide increased yields, Scottrade Bank's nascent origination platform
means that the bank will be purchasing many of the loans in the secondary market
which increases the risk of adverse selection.

Given these challenges regarding the growth of the asset side of the bank,
Scottrade's elevated sensitivity to stock market trends, and presently higher
leverage metrics, Fitch notes there is very limited upside to current ratings.

Scottrade Financial Services, Inc. is a privately owned thrift holding company.
Brokerage subsidiary Scottrade Inc. is one of the largest online brokerages in
the U.S., offering low-cost trading in stocks, bonds, options, mutual funds, and
exchange-traded funds (ETFs) to consumers, with transactions handled in real
time. Thrift subsidiary Scottrade Bank primarily accepts brokerage clients'
uninvested cash and offers deposit products to brokerage clients.

Fitch has affirmed the following ratings:

Scottrade Financial Services, Inc.
--Long-term IDR at 'BBB-';
--Senior unsecured notes at 'BBB-'.

The Rating Outlook is Stable.

Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research
--'Global Financial Institutions Rating Criteria', Aug.ust 16, 2011;
--'Securities Firms Criteria', Aug.ust 16, 2011.

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Securities Firms Criteria
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