April 17, 2012 / 1:02 PM / 6 years ago

UPDATE 3-TD Ameritrade profit falls with trading levels

* Fiscal 2nd-qtr EPS of $0.25/shr meets expectations

* Clients add $10.8 bln in net new assets

* Shares flat in afternoon trading

By John McCrank

April 17 (Reuters) - TD Ameritrade Holding Corp reported a 20 percent drop in quarterly profit on Tuesday, in line with estimates, as weaker trading levels and ultra-low interest rates cut into income, while expenses rose.

TD Ameritrade is the No. 1 U.S. discount broker by trading volume and its results are often seen as a proxy for the mood of Main Street investors. The company derives more than 40 percent of its annual revenue from trading fees and commissions.

Clients of the Omaha, Nebraska-based broker made an average of 387,571 trades a day versus 439,158 a year earlier, despite a 12 percent rise in the S&P 500 Index during the latest quarter. That led to a hefty 14 percent drop in commission and transaction fees, to $292.1 million.

The year-ago period was the company’s busiest quarter ever for trading and came at a time when the global economic recovery looked back on track, before the European debt crisis began to dominate headlines and take the wind out of markets.

“Retail investor sentiment is much different today ... They remember this time last year and they got burned and they don’t want to get burned twice,” TD Ameritrade Chief Executive Fred Tomczyk told analysts on a conference call.

Trades so far in April were running even lower, at an average of 370,000 a day, though activity may pick up going forward as more companies report quarterly results, JMP Securities analyst David Trone said in a note to clients.

Trone said recent trading activity has been slower than expected and he views that as a slight negative for TD Ameritrade, as well as online brokerage E*Trade Financial , which reports results on Thursday.

RESULTS IN LINE

TD Ameritrade said it earned 25 cents a share, or $136.7 million in its fiscal second quarter ended March 31. It earned 30 cents a share or $171.7 million in the year-earlier period.

Revenue fell 6 percent to $673.1 million.

Analysts, on average, expected 25 cents a share on revenue of $672.1 million, according to Thomson Reuters I/B/E/S.

Near zero interest rates have taken a toll on TD Ameritrade and other brokerages, compressing net interest margins. Net interest revenue fell to $106.7 million from $121.6 million.

Operating expenses rose 4 percent from a year earlier to $454 million. They were roughly flat quarter-over-quarter, excluding advertising costs. Tomczyk said expenses would likely remain flat going forward as the company focuses on maintaining momentum in organic growth.

DOUBLE-DIGIT ASSET GROWTH

TD Ameritrade said clients added a net $10.8 billion in net new funds to their TD Ameritrade accounts in the quarter, for an annualized growth rate of 11 percent.

That was about double the industry average and will help drive long-term earnings, said BMO Capital Markets analyst David Chiaverini.

Total client assets rose 7 percent to $452.4 billion.

The company earned $209.2 million on fees from insured deposit accounts, up from $187.5 million a year earlier, while revenue from investment product fees rose to $46.2 million from $40.4 million.

TD Ameritrade’s largest shareholder is Toronto Dominion Bank, Canada’s No. 2 lender, which holds a stake of around 45 percent. TD Bank expects TD Ameritrade’s fiscal second-quarter earnings to contribute about C$47 million ($47.8 million) toward its fiscal second-quarter income.

Shares of TD Ameritrade were flat at $18.78 on Tuesday afternoon.

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