- The Washington Times - Tuesday, April 21, 2009

OMAHA, NEB. (AP) - Online brokerage TD Ameritrade Holding Corp. said Tuesday its second-quarter profit dropped 29 percent as revenue slumped almost 16 percent, but the earnings were in line with Wall Street expectations and the company reaffirmed its full-year guidance.

While its trading activity grew, the company said the low interest rate environment hurt its returns on assets.

Its shares gained $1.71, or 11.3 percent, to close at $16.86 Tuesday.

Ameritrade’s overall results are similar to the 29 percent drop in earnings broker Charles Schwab Corp. reported last week. Ameritrade didn’t invest in U.S. subprime mortgages, so it has avoided most of the problems that plagued other financial services companies.

Ameritrade President and CEO Fred Tomczyk said he is pleased with the strong client asset, account and trading numbers the company was able to deliver in the midst of the ongoing recession. Tomczyk says he doesn’t think the economy will improve much this year.

“As long as it’s not getting worse, sooner or later it’s going to get better,” Tomczyk said.

The Omaha-based company earned $132 million, or 23 cents per share for the quarter ended March 31, down from $186.7 million, or 31 cents per share, a year ago.

Its revenue fell to $525.5 million from $622.9 million a year ago.

Analysts surveyed by Thomson Reuters expected Ameritrade to earn 23 cents per share on $512.25 million revenue.

Ameritrade affirmed its forecast for 2009 earnings between 90 cents and $1.15 per share. Analysts on average expect earnings of 98 cents a share for the year.

The company said it handled an average of 324,837 trades per day during the quarter, which is 8 percent more than the same period a year ago. The increase in trades helped Ameritrade’s transaction-based revenue grow about 8 percent, to $265.4 million.

Ameritrade’s asset-based revenue fell nearly 33 percent, to $252 million. The company’s asset-based revenue includes interest revenue on client accounts, money-market fees and various investment products. Asset-based revenue is generally considered more stable than transaction-based fees, and Ameritrade has been working to increase its asset-based revenue.

But the Federal Reserve’s interest-rate cuts over the past year have greatly reduced the amount of interest revenue Ameritrade collects.

“Our single biggest challenge continues to be the near-zero interest-rate environment,” Tomczyk said.

Ameritrade added $6.4 billion in net new client assets during the quarter, down about 7 percent from the prior-year period.

The company held $224.9 billion total client assets at the end of the quarter, down 4 percent from $233.8 billion at the beginning of the quarter

The number of accounts at the online brokerage grew 2 percent during the quarter, to 7.2 million, as 194,000 new accounts were opened.

Credit Suisse analyst Howard Chen said in a research note that Ameritrade performed well during the quarter thanks to continued strong trading numbers and its efforts to persuade investors to let Ameritrade handle a larger share of their assets.

“Despite a challenging market backdrop, TD Ameritrade posted a solid quarter,” Chen said.

Ameritrade announced plans to change the kind of accounts it offers clients when they want to park their cash between trading. About $10 billion-$14 billion in client assets will be moved over the next year from money market funds to money market deposit accounts.

The company predicts those accounts will offer better interest rates to clients and be more profitable once interest rates increase.

FBR Capital Markets analyst Matt Snowling said in a research note the new FDIC-insured cash management accounts should benefit Ameritrade.

“We view this decision as a significant enhancement to TD Ameritrade’s earnings potential,” Snowling said.

Ameritrade is completing a deal announced in January to buy options trading specialist thinkorswim. The cash and stock deal worth roughly $606 million is expected to close during Ameritrade’s third quarter.

During the second quarter, Ameritrade repurchased 36 million shares of its stock for an average price of $11.88 to ensure the thinkorswim deal won’t dilute shareholders ownership of Ameritrade. About 34 million of those shares were bought from the family of Joe Ricketts, who helped found Ameritrade, leaving the Ricketts clan with control of about 17.7 percent of Ameritrade’s stock and two board seats.

Through the first half of the fiscal year, Ameritrade reported net income of $316.4 million, or 54 cents per share, down 26 percent from $427.6 million, or 71 cents a share, a year ago.

Six-month revenue declined 10 percent, to $1.1 billion from $1.3 billion a year ago.

___

On the Net:

TD Ameritrade Holding Corp.: http://www.amtd.com

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