TD Ameritrade's Profit Falls; Cites Fewer Trades, Low Interest Rates

TD Ameritrade (AMTD) reported earnings below expectations on Tuesday, largely due to declining trade income and a low interest rate environment.The company recorded profits of $136.2 million, or 23 cents per share, down from $184.4 million, or 31 cents per share, a year earlier. Wall Street was expecting the discount broker to report 26 cent per share. Revenues, meanwhile, rose 2% to $625 million.

Still, all was not bad news. The company said it has been attracting more new accounts, including financial advisers and brokers looking to take advantage of the upgraded technology on its trading platform. Management has also been building up assets and positioning itself to thrive once interest rates begin to increase. The company has moved more than $20 billion of investor cash out of money market funds into other higher revenue-generating investment products. It also has amassed a record $58 billion in client cash and has refinanced its debt to more flexible terms – moves that most analysts agree will pay dividends, but not this quarter.

"Despite the ongoing low interest rate environment, we have actually increased our asset-based revenues quarter-over-quarter, largely due to our strong organic growth and the implementation of our new cash management strategy," said Bill Gerber, Ameritrade's executive vice president and chief financial officer.

President and CEO Fred Tomczyk would not confirm talk that Ameritrade was looking to do a deal with E*trade, but said for the company to pursue any deal, "it has to make strategic and financial sense."

Joseph Hargett of Schaeffer's Investment Research pointed out last week that Ameritrade had beaten the consensus analysts estimate two of the last four quarters, helping the stock rally 44% from the same time last year. After declining 2% in pre-market trading, the stock was up 2% in early morning trading.

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