CORRECTED-TD Ameritrade amends TD Bank pact, permitting more buybacks

Thu Dec 5, 2013 6:18pm EST
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(Corrects to say that the cash sweep arrangement between TD Ameritrade and TD Bank is not governed by the shareholder agreement between the two)

By Jed Horowitz

NEW YORK Dec 5 (Reuters) - TD Ameritrade Holdings, 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 and to extend the relationship between the two for five years.

Currently, if the Canadian bank's ownership of TD Ameritrade common stock rises above 45 percent because of a share repurchase, it must sell down its stake "as soon as practicable." As of Sept. 30, TD Bank owned 42 percent of the U.S. brokerage firm's common stock.

Under an amendment that goes into effect on Jan. 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 have extensive business relationships, including reduced fees to the broker when it sweeps customer unused cash into bank deposit accounts, that are not affected by the shareholder agreement.   Continued...