Nebraska-based investment brokerage firm, TD Ameritrade Holding Corporation (AMTD) has modified its agreement with Canadian bank, The Toronto-Dominion Bank (TD). The amendment extends the existing agreement’s date of expiry from Jan 24, 2016 to Jan 24, 2021. It also enables TD Ameritrade to carry out more stock buybacks.
However, shareholders’ agreement with Joe Ricketts – founder of TD Ameritrade – will terminate on Jan 2016. This implies that Ricketts will be bereft of the authority to appoint TD Ameritrade’s board of directors after expiry of its agreement with Toronto-Dominion Bank.
According to the amended agreement, if any share repurchases by TD Ameritrade leads to Toronto-Dominion Bank having more than 45% interests, the latter will have to shed its stake. Notably, as of Sep 30, Toronto-Dominion Bank owned 42% stake in the brokerage firm.
The new agreement also permits the bank to keep 2% of securities from its stake for clients and other general business purposes. The permit under the current agreement is 1%. Additionally, Toronto-Dominion Bank will sell ordinary securities within six months of exceeding 1% of outstanding common stock.
Under the amended agreement, if the ordinary stock exceeds 1% of TD Ameritrade’s outstanding stock as well as any excess stock over 45%, Toronto-Dominion Bank will be entitled to vote in the same proportion as shareholders in corporate governance matters.
TD Ameritrade’s tie-up with Toronto-Dominion Bank provides it an opportunity to cross sell products. This is expected to be a significant growth driver for TD Ameritrade’s organic assets.
Also, innovations in online trading, long-term investment in products and services, delivery of advanced customer service, creative as well as cost-effective marketing and sales are expected to boost TD Ameritrade’s trading and investing business. However, a low interest rate environment and stringent regulations are challenges.
TD Ameritrade carries a Zacks Rank #3 (Hold). Some better-ranked brokerage firms include Interactive Brokers Group, Inc. (IBKR) and Evercore Partners Inc. (EVR). Both these stocks have a Zacks Rank #2 (Buy).
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