Online brokerage TD Ameritrade 1Q profit fell 26 pct on low interest rates, higher expenses

Low rates, high costs depress TD Ameritrade profit

OMAHA, Neb. — Online brokerage TD Ameritrade Holding Corp. said Tuesday lower interest rates and higher expenses drove its first-quarter profit down 26 percent, but the company will be ready to grow when rates rise.

Healthy trading volume wasn’t enough to offset a decline of 10 percent in asset-based revenue and an increase of nearly 31 percent in expenses, the company said.

Expenses jumped to $384.2 million largely because of last year’s acquisition of options-trading specialist thinkorswim and the launch of its new marketing campaign.

Ameritrade President and CEO Fred Tomczyk said the company remains focused on improving its long-term results, not on things it can’t control, such as interest rates.

“I feel very good about where we’re at,” Tomczyk said in an interview.

Ameritrade, based in Omaha, earned $136.2 million, or 23 cents per share, for the three months ended Dec. 31, down from $184.4 million, or 31 cents a share, a year ago.

Revenue grew about 2 percent to $624.6 million from $610.7 million a year ago.

Analysts expected earnings per share of 26 cents on $628.18 million in revenue.

Credit Suisse analyst Howard Chen said in a research note that Ameritrade executives have managed the company well during the difficult economy, but he thinks that’s largely reflected in the current stock price.

Its shares rose 68 cents, or 3.7 percent, to $19.00 in afternoon trading.

During the quarter, Ameritrade paid off $1.4 billion in bank debt, issued $1.25 billion in bonds and then refinanced $750 million of the debt at a low floating rate. So while low interest rates will continue to limit Ameritrade’s revenue, the company will also see lower debt costs.

Tomczyk said Ameritrade decided to refinance most of its debt at the lower floating rate to boost 2010 profit and better align the company’s revenue and expenses. But $500 million of Ameritrade’s debt remains at a fixed 5.6 percent 10-year rate.

“We think we’re very well-positioned for continued growth,” Tomczyk said.

Isabella Fonseca, a senior analyst with Boston-based consulting firm Celent, said Ameritrade delivered solid financial results this quarter because of the options-trading volume it acquired with thinkorswim and its growing asset-management business.

Ameritrade estimated the number of trades it handled increased 6 percent to an average of 378,561 trades per day during the quarter. That led to an 8 percent increase in transaction-based revenue to $309.4 million from last year’s $287.1 million.

Ameritrade’s asset-based revenue, which is linked to current interest rates, includes money earned on its clients’ deposit accounts and other investment products. Asset-based revenue to $284.2 million from $317.2 million in the quarter.

Company officials said they expect expenses to taper off in early fiscal 2011 after Ameritrade finishes upgrading its two main data centers and the thinkorswim acquisition is fully integrated.

As part of its plan to survive the recession, Ameritrade continues to hold onto a substantial amount of cash and other liquid assets. The company had about $1.1 billion on hand at the end of December.

On the Net:

TD Ameritrade Holding Corp.: www.amtd.com