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Interest Rates Boost AmeritradeHigher Charges Compensate for Falling Commissions to Raise Third-Quarter Revenue and Profits.

Posted on: Wednesday, 13 July 2005, 18:00 CDT

Higher interest charges, resulting from rising interest rates, more than made up for falling commissions to give Ameritrade both higher revenue and profits in the third quarter.

The Omaha online brokerage reported Tuesday morning that profits rose to $74.7 million, 18 cents a share, in the quarter that ended June 24. In the third quarter last year, profits were $62.3 million, 15 cents a share.

Revenue in the April-June quarter was $234.4 million, up from $220 million a year earlier.

Commissions fell to $113.1 million from $136.2 million. Net interest revenue -- what clients paid on margin accounts minus the company's brokerage interest expense -- rose to $98.7 million; a year earlier it was $62.7 million. The company paid $38.7 million in brokerage expense, $30 million more than in the year-earlier quarter.

Commissions' share of revenue fell to 48 percent in the quarter; it was 62 percent in last year's third quarter. Net interest climbed to a 42 percent share from 29 percent.

Higher interest rates are the product of repeated increases in base rates by the Federal Reserve System as it moves to keep inflation in check.

Customers traded less. Daily trading averaged 138,900 transactions during the quarter, down from 163,906 in the third quarter of 2004. The average per-trade commission declined to $12.72 from $13.41.

Trading has fallen further in July, to 125,000 transactions a day.

Ameritrade cut expenses during the quarter to $112 million, nearly $6 million lower than a year earlier.

Joe Moglia, the company's chief executive officer, expects the trend of revenue from interest exceeding that from commissions to continue for the immediate future.

"I think so for a couple of reasons," Moglia said in an interview. "I don't see a catalyst yet for why the individual investor should become more aggressively involved over the summertime, so I don't see an uptick in trading. Secondly, keep in mind that the Fed continues to be in a tightening mode."

Moglia was pleased with the quarterly results.

"We have done a good job all along in keeping our costs intact. We're able to maintain our margins," he said. "I am proud of the fact that we were able to do that while so many of our people were working very hard on the TD deal."

Ameritrade announced June 22, two days before the end of the quarter and after extended talks, that it would buy TD Waterhouse USA, the U.S. arm of a Toronto-Dominion Bank subsidiary that includes an online trading service. Moglia said Tuesday that Ameritrade is now working on regulatory affairs preparatory to closing the deal.

"Both financially and strategically, we kept our focus and delivered a record June quarter," Moglia said in a press release. "The company is also on track to deliver record earnings per share for this fiscal year."

The company projects fullyear revenue of $958.4 million to $1 billion and profits of 75 to 80 cents a share. Commissions and clearing fees are expected to come in at $489.7 million to $521.3 million.

The profits range projected for the year that ends in September has been tightened from an earlier estimated range of 73 cents to 83 cents.

Results for the first nine months of fiscal 2005 showed revenue of $728.8 million, up from $693.3 million in 2004, and profits of $238.3 million, up from $215.2 million. Per share, profits rose 8 cents to 58 cents a share.

Ameritrade's stock price rose 37 cents to a 52-week closing high of $19.28 a share Tuesday. Volume was 14.9 million shares compared with a 52-week daily average of 5.1 million shares. The stock traded as high as $19.55 Tuesday.

Source: Omaha World - Herald

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