July 22, 2014 / 5:06 PM / 4 years ago

TD Ameritrade third quarter profit rises 3 percent despite sharp trading drop

NEW YORK (Reuters) - TD Ameritrade Holding Corp, the biggest online stockbroker as measured by client trading, said quarterly net income rose 3 percent from a year earlier despite higher expenses, continuing low interest rates and a drop in client trades and commissions.

The discount broker on Tuesday reported profit of $190 million, or 34 cents a share, in its third fiscal quarter ended June 30. It said the improvement came on a 24 percent rise in new assets to $13.4 billion, a surge of business with independent investment advisers whose clients open TD Ameritrade accounts and sales of fee-based products.

But clients who trade heavily hoping to glean small gains from stock volatility have been stymied by unusually calm markets, TD Ameritrade executives said. Between April 1 and July 17, the S&P 500 stock index has not moved up and down more than 1 percent on a single day, its longest stretch of relative quiet since 1994.

Chief Executive Officer Fred Tomczyk said on a conference call that the lack of volatility was surprising, given market-shaking geopolitical events such as the Ukraine plane crisis and Middle East hostilities.

Daily average trades by TD Ameritrade clients fell to 401,000 in the just-ended quarter from a record 492,000 in the first quarter, and are down to 396,000 thus far in July. Fee revenue, however, jumped 22 percent to $79 million.

Like competitor Charles Schwab Corp, TD Ameritrade, has battled the lower trading by seeking money from wealthier investors who often pay fees based on assets kept at the firms.

Many customers are referred by independent investment advisers who keep clients more fully invested in markets than do retail clients who invest on their own, Tomczyk said.

“If we can maintain our asset gathering through the fourth (fiscal) quarter, a sixth consecutive year of double-digit asset gathering is possible,” Tomczyk said.

In an interview with Reuters, Tomczyk said brokerage accounts remained TD Ameritrade’s core product, and that asset gathering ultimately leads people to trade more in their accounts, borrow against those accounts and add cash to accounts that the firm can invest for its own profit.

Discount brokers thrive when the spread between short-term and long-term interest rates widen so that they can invest client cash at higher rates than they pay for the cash. Interest revenue inched up 1 percent last quarter.

Tomczyk said he is fairly confident short-term rates will rise late this year or early next year.

Expenses jumped 8 percent from the 2013 quarter to $447 million, largely due to higher costs to execute individual stock option trades, investments in technology and one-time consulting costs related to advertising. The company said costs should return to a more normal range of $390 to $400 million this quarter. Net revenue grew 5 percent to $763 million.

Shares of TD Ameritrade were off 0.2 percent to $31.08 in early afternoon trading.

Editing by Jeffrey Benkoe

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