TD Ameritrade profit up 40 percent as trades rise


* Fourth-quarter net income $0.36 vs est. $0.35

* Revenue rises 10 percent to $709 million

* Forecasts FY 2014 EPS $1.20-$1.40 vs est. $1.21

* Raises dividend to 12 cents from 9 cents

* Declares special dividend of 50 cents

By Jed Horowitz

Oct 29 (Reuters) - TD Ameritrade Holding Corp, thebiggest U.S. discount brokerage by client-trading volume,reported a 40 percent jump in its fiscal fourth-quarter netincome that just beat analysts' estimates as both tradingcommissions and product fees soared.

Shares of TD Ameritrade were down 1.1 percent to $27.62 inafternoon trading on Tuesday. In research reports, some analystssaid they were disappointed at the decline in net interestmargin during the quarter and the firm's weak interest profitforecast for next year.

Budget and economic policy uncertainty in Washington,nevertheless, stimulated active traders during the quarter,company executives said. At the same time, more conservativeinvestors bought fee-based products such as mutual funds andexchange-traded funds. The quarter ended on Sept. 30, justbefore the government shutdown.

TD Ameritrade said that market volatility continues toaccelerate this month, spurring 419,000 average trades per dayamong its clients through Oct. 28, compared with 382,000 lastquarter and 374,000 for the company's full fiscal year thatended on Sept. 30.

It and other big retail brokerage firms such as CharlesSchwab Corp, however, continue to struggle with lowinterest rates that depress the revenue and profits they gleanby investing client assets.

Schwab two weeks ago reported a 17 percent rise in profiton asset-based fee growth, but waived a record $180 million inmoney-market fund fees so investors would not have negativereturns from the funds' near-zero yields. TDAmeritrade is much less active than its competitor in moneymarkets, its CEO said, but continues to struggle with lowreturns on investments.

The depressed rate climate is likely to continue for anotheryear or two and reflects a still-weak economy and tepid investorconfidence, TD Ameritrade executives said in a conference callwith analysts on Tuesday morning.

The firm also benefitted from the continuing trend ofadvisers leaving traditional brokerage firms, going independentand housing client assets and trades at the discount brokeragefirms. In fiscal 2013, TD Ameritrade picked up an average of 1.5new brokers leaving full-service firms each business day, andthe sales pipeline "remains robust," Tomczyk said. TD Ameritradetrails Schwab and Fidelity Investments in servicing independentadvisers.

Despite the politically induced boost in volatility andtrading volume, executives said they would prefer more fiscaland economic policy certainty, blaming Washington's"crisis-to-crisis" management for restraining the U.S. economyand investor confidence.

"If the economy improves and interest rates go up, it's alasting and long runway in front of us, whereas volatility won'tlast forever," TD Ameritrade Chief Executive Fred Tomczyk said.

Active client accounts rose 4 percent to 5.99 million infiscal 2013. TD Ameritrade shareholders realized a total returnof more than 75 percent through dividends and a stock priceincrease, but Tomczyk warned investors not to count on a repeatperformance.

"I don't think you could expect that (return) every year,"he said.

The Omaha, Nebraska-based brokerage firm forecast 2014earnings per share of $1.20 to $1.40 compared with a 15 percentrise to $1.22 in fiscal 2013. That translates to a 14.8 percentincrease at the high end and 6.5 percent in the middle of therange.

Net interest margins next year should remain stable toslightly up, the company said. But after five straight years ofdouble-digit growth in gathering assets from clients, the firmprojected 2014 new assets growing in a range of 7 to 11 percent.

TD Ameritrade, whose biggest shareholder is Canada'sToronto-Dominion Bank with a 42 percent stake, continuesto generate significant cash that it has returned to investors.It raised its dividend to 12 cents a share from 9 cents a sharein the fourth quarter, its third-consecutive, annual hike. Forthe second-consecutive year, it declared a special dividend of50 cents per share.

The dividends signify that the company, which had its creditrating boosted last quarter by Moody's Investors Service, hasstrong capital and liquidity and does not see any significantacquisition opportunities on which to spend its cash, Tomczyksaid. It also wants to reward current shareholders and attractnew ones.

"While the environment is better, we still think that in '14and '15 you will have a lot of uncertainty," he told Reuters. "Alot of people are looking for yield in this market, and we wantto expand the shareholder base."

For the just-ended quarter, TD Ameritrade's net income roseto $200 million, or 36 cents a share, from $143 million a yearearlier.

The consensus forecast of analysts surveyed by ThomsonReuters I/B/E/S was for earnings per share of 35 cents.

Net revenue rose 10.3 percent to $709 million while totaloperating expenses were up 3.6 percent to $430 million.Commissions and transaction fees soard 20 percent to $306million, while net interest revenue was up 3 percent as thebrokerage attracted about $10 billion of net new assets.

TD Ameritrade does not break out revenue or profits of itsthree main businesses - direct discount brokerage, trading andproduct sales to clients of independent investment advisers andits investment product fee business.

But Tomczyk said the company plans to add new wrap-fee fundproducts in 2014 - driving investment product fees up 15 percentto 25 percent - as well as "robust" growth in new independentadvisers.

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