TD Ameritrade amends TD Bank pact, permitting more buybacks

Thu Dec 5, 2013 10:59am EST
 
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By Jed Horowitz

NEW YORK (Reuters) - TD Ameritrade Holdings AMTD.N, the largest discount brokerage firm by daily trades it executes, has modified its agreement with Toronto Dominion Bank, its largest shareholder, in order to give the broker more leeway to do stock buybacks.

Currently, TD Ameritrade must refrain from repurchasing stocks from investors if the reduction in shares outstanding brings the Canadian bank's ownership above 45 percent. As of September 30, TD Bank TD.TO owned 42 percent of the U.S. brokerage firm's common stock.

Under an amendment that goes into effect on January 24, 2016, the bank agreed to use "reasonable efforts to sell or dispose" of stock that brings it over the 45 percent limit, but "has no absolute obligation" to do so, according to a Thursday morning filing from TD Ameritrade with the Securities and Exchange Commission.

The filing could encourage buying of the brokerage stock, since buybacks tend to temporarily boost share prices. The brokerage firm has made no buybacks this year.

The earnings of TD Ameritrade and other large discount brokers are highly dependent on rising interest rates, and investors have been buying TD Ameritrade shares in anticipation of a change in Federal Reserve policy. The Fed is widely expected to scale back the pace of its bond purchases in coming months, which could push interest rates higher.

Shares of TD Ameritrade have risen 88 percent over the last 12 months, including reinvested dividends.

TD Ameritrade and TD Bank under their shareholder agreement have extensive business relationships, including reduced fees to the broker when it sweeps customer unused cash into bank deposit accounts. Under the current agreement, the agreement terminates if the 45 percent threshold is breached.

The amended agreement also extends the shareholders' agreement with the bank by five years to January 24, 2021. It was set to expire in January 2016. The stockholders agreement with firm founder Joe Ricketts, however, expires in January 2016, meaning he will not be able to designate directors for the firm's board. Ricketts and his family own about 67 million shares of TD stock.   Continued...

 
The inside of a TD Bank branch is seen in New York January 17, 2012. REUTERS/Shannon Stapleton