September 10, 2013 / 6:16 PM / in 4 years

TD Ameritrade's new assets to soar for 5th straight year -CEO

NEW YORK, Sept 10 (Reuters) - TD Ameritrade Holding Corp expects to report next month that new client assets rose at a double-digit rate for the fifth consecutive year, exclusive of market fluctuations, a senior executive said Tuesday.

That’s significant for the online brokerage firm since its return on client assets is expected to skyrocket once U.S. interest rates begin rising. TD Ameritrade, whose fiscal year ends on Sept. 30, had $94 billion of interest-rate sensitive assets in fee-based and other customer accounts as of June 30.

The continuing inflow of new money, which TD Ameritrade invests for itself until used by clients, also vindicates a strategy put in place by Chief Executive Fred Tomczyk about four years ago to supplement TD Ameritrade’s long-time reliance on commissions with fee-based accounts.

“Assets have been growing for years, and we see no signs of that abating,” Tomczyk said at a conference in New York sponsored by Barclays.

The firm, the largest online U.S. broker as measured by client trades, has previously said that it expects net new assets to grow between 7 percent and 11 percent in its 2013 fiscal year, following an 11 percent rise in 2012 and a 12 percent jump in 2011.

Tomczyk conceded that asset growth gets harder as total assets rise, but said after the presentation that the company’s business of selling services to investment advisers has helped in the new-asset race. While new assets from retail clients who invest directly with the firm are growing at a 5 percent-to-9 percent rate, those from clients of investment advisers are going up at an 11 percent to 17 percent rate, he said.

The firm’s combined net new asset growth rate as of June 30 was 11 percent.

The Omaha, Nebraska-based firm has hardly abandoned its heritage of appealing to active traders who generate commissions. TD Ameritrade also announced Tuesday that clients’ daily average trades in August rose 2 percent from July 2013 and 26 percent from August 2012, to 382,000 a day.

Investors tend to dismiss such good trading months as unsustainable, Tomczyk said, but added that volume is likely to rise even more when the Federal Reserve reverses its quantitative easing policy, something expected to happen by year-end. That is because active traders seize on volatility that is likely to occur when the Fed unwinds its bond purchases.

A one percent rise in the federal funds rate should translate to about a 32-cent rise in TD Ameritrade’s earnings per share in the first year after the rate rise - and to 54 cents a share by the end of the third year after such a rise - according to the company.

TD Ameritrade is expected to earn $1.20 per share in fiscal 2013, according to the consensus estimate of 17 analysts surveyed by Thomson I/B/E/S. It earned $1.06 a share in 2012.

Shares of TD Ameritrade have grown by 62.7 percent in the past 12 months, including reinvested dividends. Some investors at the Barclays conference said the stock appears fully valued, with the market giving TD and other discount brokers credit for the expected jump in interest rates.

Tomczyk said that TD Ameritrade has the lowest valuation among its online brokerage peers.

Shares of TD Ameritrade were up 3.3 percent at $27.64 in afternoon trading, compared with a 0.65 percent rise in the S&P 500 index.

Shares of rival E*Trade Financial Corp were up by about 3.9 percent as Macquarie Securities raised its recommendation on E*Trade to “outperform.” Regulators’ decision last week to let the company withdraw $100 million of capital from its bank was a “significant” vote of confidence in E*Trade’s financial recovery plan, Macquarie analyst Sameer Murukutla wrote in a note to investors.

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