TD Ameritrade leaders say E-Trade deal unlikely; predict slow economic recovery

TD Ameritrade execs say E-Trade deal unlikely

OMAHA, Neb. — TD Ameritrade’s CEO said Thursday there’s no way the online brokerage would consider acquiring rival E-Trade right now because the deal would involve too much risk.

Ameritrade CEO Fred Tomczyk addressed the possibility of an E-Trade deal after a shareholder asked about it at the company’s annual meeting in Omaha.

Typically, Tomczyk and other Ameritrade executives avoid talking about acquisition rumors and any specific deals. But Tomczyk said Thursday that there is no way Ameritrade would consider acquiring E-Trade because E-Trade still has too much questionable debt.

“They’re much better today, but there’s still too much risk on that balance sheet for our appetite right now,” Tomczyk said about E-Trade.

Ameritrade continues to have a strong balance sheet with roughly $1 billion cash to help it handle surprises and pursue any attractive opportunities.

“We think it is very important that our balance sheet remain conservative,” Tomczyk said.

E-Trade and Ameritrade have talked about merging in the past, but have never agreed on terms. And analysts have previously questioned whether the company’s different strategies could be melded.

In the summer of 2007, Ameritrade rebuffed two hedge funds that put pressure on the Omaha-based company to complete a merger with a major competitor like E-Trade.

Ameritrade officials maintain that the company regularly considers possible acquisitions or buyouts, but will only pursue such a deal if it will benefit shareholders in the long run. For instance Ameritrade acquired options-trading specialist thinkorswim last year to improve its options capabilities.

Tomczyk said the company remains focused on its long-term goals, not on maximizing quarterly results.

Tomczyk and Chairman Joe Moglia also told shareholders they expect the U.S. economy to recover slowly. They say Ameritrade will thrive when business does improve.

“We are still in a difficult and uncertain environment, and we don’t expect that to anytime soon,” Tomczyk said.

Moglia told shareholders the economy has improved significantly over the past year, but he predicted the recession will linger.

“While the worst of that is behind us, you don’t go through something like that without very significant after-effects,” Moglia said.

One of the biggest challenges for Ameritrade in the current environment is the low interest rates, which restrict how much the company can make on its customers’ deposit accounts and various investment products.

When interest rates increase, Ameritrade’s asset-based revenue will also increase.

Both Ameritrade executives said they are concerned about new regulations Congress might adopt in response to the financial crisis.

“We are in an incredibly intense regulatory environment,” Moglia said.

Tomczyk said he wants to make sure that any new rules or taxes target the three main sources of the nation’s recent economic problems: a flawed housing finance system, excessive borrowing and leverage throughout the financial system and inadequate capital reserves.

During the business portion of the Ameritrade meeting, shareholders approved two changes to the company’s long-term incentive plan and re-elected four directors to the board.

The changes to the incentive plan will allow Ameritrade to award stock options to directors and consultants, as well as Ameritrade employees.

And Ameritrade will have the authority to change the vesting schedule of the stock options it awards. Previously, Ameritrade’s incentive plan required stock awards to vest three years after they are awarded.

On the Net:

TD Ameritrade Holding Corp.: www.amtd.com