Tuesday, January 16, 2007

TD Ameritrade Q1 2007 Earnings

Financial Post, Duncan Mavin, 16 January 2007

Toronto-Dominion Bank’s share of record quarterly income from U.S. broker TD Ameritrade should help the Canadian bank convince investors that its earnings are more balanced this year than in 2006, said Genuity Capital Markets analyst Mario Mendonca.

TD turned in its own record income last year, but that was largely reliant on the performance of the bank’s domestic retail franchise.

However, in the first quarter of 2007, the Canadian bank will net $64-million from Ameritrade, in which it has a 39.5% interest. TD earned 433-million from its U.S. on line broking division in the same period last year.

“For TD Bank, we believe that improved performance from both Ameritrade and trading evenue within TD Securities in 2007 should provide the bank with a more balance earnings profile this year,” said Mr. Mendonca.

Ameritrade reported net income for the quarter of US$146-million, up from US$86-million last year. The broker benefited from strong market conditions in the U.S. and improved margins, said Mr.Mendonca.

Bloomberg, Bradley Keoun, 16 January 2007

TD Ameritrade Holding Corp., the third-largest online brokerage, said profit climbed a better- than-estimated 69 percent after the stock market rallied and the company acquired one of its biggest competitors. Shares of TD Ameritrade rose by the most in six months.

Net income climbed to $145.6 million, or 24 cents a share, in the fiscal first quarter from $86 million, or 21 cents, a year earlier, when TD Ameritade didn't yet own TD Waterhouse USA.

``It was a solid quarter,'' said Patrick O'Shaughnessy, an analyst at Morningstar Inc. in Chicago, who rates TD Ameritrade's shares three stars out of five. ``They really benefited from the trading market picking back up in the fourth quarter of 2006.''

Chief Executive Officer Joseph Moglia used the purchase of TD Waterhouse, completed almost a year ago, to more than triple client assets and double high-interest margin loans. That put TD Ameritrade in a better position to benefit from seven straight months of gains in the Standard & Poor's 500 Index, the benchmark for U.S. stocks.

Bank of America Corp. analyst Michael Hecht estimated that, industrywide, trades by online-brokerage clients increased 21 percent from a year earlier and 7 percent from the quarter ended in September. Moglia now plans to boost profit to about $1.10 a share this year from 95 cents in fiscal 2006, in part by closing offices, eliminating jobs and combining the two companies' trade-processing systems.

TD Ameritrade's revenue in the quarter almost doubled to $535.2 million from $277.3 million, and customers made an average of 237,500 trades per day, up 52 percent from a year earlier and 16 percent more than in the September quarter.

Moglia said customers would have traded even more without the ``confusion'' over whether the Federal Reserve will raise short-term interest rates to control inflation. Individuals are ``positive as far as the market goes,'' he said in an interview. ``They're not wildly bullish.''

Customers are averaging 260,000 trades per day so far in January. Moglia said that kind of increase is typical because the first three months of the year are usually the most active.

Average commissions and transaction fees per trade also rose from the fourth quarter, to $12.92 from $12.76, though they declined from $13.29 a year earlier.

TD Ameritrade was expected to earn 22 cents a share, the average estimate in a Bloomberg survey of analysts. The company's shares, last year's worst performers in the 12-member Amex Securities Broker/Dealer Index, rose 65 cents, or 3.8 percent, to $18 in composite trading on the Nasdaq Stock Market.

TD Waterhouse gave the renamed TD Ameritrade a network of about 4,000 investment advisers and increased by 87 percent the number of client accounts with balances of more than $2,000. Because it had a larger investment-advisory business, TD Waterhouse cut TD Ameritrade's reliance on trading commissions, which represent about 40 percent of overall revenue.

E*Trade Financial Corp., the fourth-largest online brokerage, generates about 20 percent of revenue from trading commissions and No. 1 Charles Schwab Corp. gets 15 percent, according to a Jan. 10 report by Morgan Stanley analyst Camron Ghaffari.

``E*Trade and Schwab have more attractive long-term growth prospects,'' O'Shaughnessy said.

TD Ameritrade's stock has fallen partly because Moglia, 57, isn't cutting costs as fast as he said he would. The consolidation of trading systems, for example, was supposed to happen in December, then in March, and now it's scheduled for May.

Moglia said he pushed the date back to keep customer- service representatives to from becoming overwhelmed at a time when they're already fielding an unusually high number of calls related to taxes.

``That would create a negative client experience,'' he said on a conference call with analysts. ``Foregoing a little bit of revenue opportunity for two months, I think, is a small, small, small price to pay for a successful overall integration for the entire deal.''

Pretax profit dropped to 45 percent of revenue in the fourth quarter from 51 percent a year earlier. Moglia said on the call that the pretax margin will return to at least 50 percent by the end of this year.

TD Ameritrade's profit will add C$64 million ($54 million) to first-quarter earnings at Toronto-Dominion Bank, Canada's second-biggest lender. Toronto-Dominion, the largest shareholder of TD Ameritrade, is scheduled to report earnings on Feb. 22.