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What Drove Interactive Brokers’ Electronic Brokerage Division

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Jan. 23 2018, Published 1:17 p.m. ET

Electronic brokerage

Interactive Brokers Group’s (IBKR) electronic brokerage division posted pre-tax income of $252 million in 4Q17, rising 50% from 4Q16. The division also saw a rise in non-interest expenses from $126 million in 4Q16 to $138 million in 4Q17. The difference between net revenues and non-interest expenses equals the division’s pre-tax income.

The electronic brokerage division had net revenues of $390 million in 4Q17 compared to $294 million in 4Q16. Its net revenues in 4Q17 saw a favorable momentum on the back of commissions and net interest income.

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What led to the rise?

The electronic brokerage division’s net interest income rose 51% in 4Q17 compared to 4Q16 on the back of a rise in average customer credit and margin loans. However, a rise in benchmark interest rates in 4Q17 compared to 4Q16 also contributed to the rise.

The electronic brokerage division also saw a rise in commissions in 4Q17 compared to 4Q16 due to a rise in customer volumes in relation to stocks and options. The division witnessed a rise in its pre-tax profit margin from 57% in 4Q16 to 65% in 4Q17.

On an LTM (last 12-month) basis, Interactive Brokers’ EV[1. enterprise value]-to-revenue ratio was 3.45x. Its peers (XLF) Wells Fargo (WFC), Bank of America (BAC), and Morgan Stanley (MS) have ratios of 10.85x, 11.25x, and 11.75x, respectively.

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