TD AMERITRADE
While some might look at this as a buying opportunity, TD AMERITRADE is more highly levered to macroeconomic news than most companies -- including those in the discount brokerage space. Accordingly, if the downgrade gains momentum and is enough to shake out investors it will have significant implications for the company.
This quarter’s strong results can be traced directly to improving investor confidence, which has helped boost its asset base as well as trading activity. Daily average revenue trades (DARTs) increased by 16% over the same quarter last year to 439,158, which is an also an increase of 18% over the previous quarter. TD AMERITRADE also saw its total client assets increase 21% to a record $413 billion.
Competitor Charles Schwab
The improvement in net interest revenue is a result of brokerages being forced to pay less in fee waivers to ensure clients don’t lose money by parking cash in its money market funds. TD CFO Bill Gerber said that the company "no longer views [low] interest rates as a headwind,” as the continued improvement of the yield curve has turned net yields on insured deposit accounts positive for the first time in three years. While this is certainly a positive for TD, it is even more important for Schwab and should serve as a better cushion for the company if trading slows down.
With its recent purchase of thinkorswim, TD did better position itself to deal with a downtrend or more volatility that moves retail investors to the sidelines. The acquisition has significantly enhanced its trading revenue and provides clients with improved platforms for hedging and diversifying risk through options, future, and forex. Derivative trades accounted for 31% of all trading done by TD clients, which is an increase from 27% a year earlier. I would expect this number to increase as TD fully integrates the acquisition and is better able to use its marketing muscle to attract more trading clients.
TD AMERITRADE has shown significant improvement as the economy has improved and investors have gained more confidence in the markets. Management has been successful in continuing to grow and diversify its client base with the acquisition of thinkorswim. Yesterday’s S&P announcement -- in addition to a slow month for trading volume -- are reminders of why I wouldn’t recommend dipping in right here. I prefer Schwab because it is less levered to trading and more levered to the improving interest rate environment. E*TRADE’s
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