uploads///Spread based

What Will Drive TD Ameritrade’s Spread-Based Revenue?


Jul. 13 2016, Updated 9:07 a.m. ET

Attracting assets

TD Ameritrade (AMTD) posted strong organic growth results in fiscal 2Q16. Trends for asset gathering, trading, and fee-based assets were strong. The company is riding on this momentum with attractive product offerings, good service, and an effective multichannel sales and service model.

These offerings are producing strong organic growth and building long-term earning power for TD. In fiscal 3Q16, asset gathering has continued across the company’s offerings despite lower daily average trades resulting from seasonality.

TD Ameritrade’s insured deposit accounts had fallen by $900 million to $83 billion as of May 30, 2016, partially offset by a $500 million rise in average interest earnings assets to $22.7 billion.

Here’s how a few of TD Ameritrade’s peers in the brokerage industry have fared in terms of net profit margins:

  • Interactive Brokers Group (IBKR): 41.1%
  • E*TRADE (ETFC): 16.2%
  • Charles Schwab (SCHW): 21.5%

Together, these companies form 1.3% of the Financial Select Sector SPDR ETF (XLF).

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Spread revenues to rise further

TD Ameritrade’s spread-based revenue rose by 8% to $382 million, led by insured deposit accounts and partially offset by lower margin loans. The company’s net stock lending stands at $32 million for the quarter, falling by $9 million due to higher volatility and fewer initial public offerings. Spread revenue is expected to rise further. The Market expects another 25 basis point rise in interest rates from the Federal Reserve.

TD Ameritrade’s average margin balances fell from $12.3 billion in fiscal 1Q16 to $11.3 billion in fiscal 2Q16. The Federal Reserve’s interest rate move in December 2015 resulted in higher spread-based revenue, partially offset by lower net stock lending and lower margin loans. The company raised its marginal lending pricing on all accounts and rates of interest earning assets on January 1, 2016. Meanwhile, client pay rates will remain at similar levels.

TD Ameritrade is focusing on controlled variables, maintaining strong organic growth, and investing in new technologies. It’s working to identify opportunities that could help it to build long-term earning power.


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