April 17, 2008 / 1:00 PM / in 10 years

UPDATE 3-TD Ameritrade net rises 32 percent, shares slip

(Adds comments from CEO, analysts, detail)

NEW YORK, April 17 (Reuters) - TD Ameritrade Holding Corp AMTD.O said on Thursday quarterly profit rose 32 percent as heightened marketing efforts brought in new customers, but the company’s shares edged slightly lower as the brokerage warned that trading activity could weaken.

Net income for the second quarter ended March 31 rose to $186.7 million, or 31 cents a share, matching analysts’ forecasts, according to Reuters Estimates. In the year-ago period, TD Ameritrade earned $141.1 million, or 23 cents per share.

Revenue rose 18 percent to $623 million, beating analysts’ forecast of $612 million.

The company spent $47 million on advertising, a 10 percent increase over the prior quarter, in its biggest push yet to promote its IRA products. Much of the campaign coincided with tax season, when the company says clients are typically taking closer looks at their investment strategies.

Chief Executive Joe Moglia said on an investor call that he expects a decrease in trading activity should troubles in the financial markets persist -- something Sandler O‘Neill analyst Richard Repetto said may explain the slight dip in share prices.

Moglia added that for now the company sees solid trading activity from clients, and is gaining assets even if former E*Trade Financial Corp ETFC.O clients are no longer moving to TD Ameritrade en masse.

E*Trade clients, who had been concerned about the stability of their brokerage, stopped flocking to other brokers in January, Moglia said. TD Ameritrade gained $2.3 billion in new client assets in December.

During the quarter, client assets rose by $7 billion, bringing the total to $306 billion. Most of that increase came from assets acquired following TD Ameritrade’s purchase of Fiserv, a financial technology company, which was completed in February.

TD Ameritrade, which is minority owned by Toronto-Dominion Bank TD.TO, affirmed its 2008 earnings-per-share midpoint forecast of $1.32. Analysts on average expect TD Ameritrade to earn $1.34 this year, according to Reuters Estimates.

Shares fell 0.6 percent, or 11 cents, to $17.47 in afternoon trading, underperforming the KBW Securities Broker index .XBD, which was up 2.1 percent.

“The primary risk to TD Ameritrade is a downturn in customer activity, which could decrease revenue,” Repetto wrote in a research note. “In addition, asset-backed revenue might be negatively affected by a decline in interest rates.”

Moglia attributed asset growth in February and March to TD Ameritrade’s marketing efforts. The company added a net 52,000 new accounts during the quarter, not including those acquired from Fiserv.

The company holds $517 million in liquid assets it plans to keep uncommitted for now. “It’s in our best interest for us to keep our powder dry,” Moglia said.

Moglia also said that the company was not actively considering any specific acquisitions at the moment, but would look at smaller, niche companies to acquire.

TD Ameritrade’s average trades per day in the quarter, a key indicator in the brokerage industry, reached 312,000, an increase of 23 percent from a year before, which Moglia attributed to higher market volatility.

But things aren’t looking as rosy for this month. Average daily trades in April so far are down to 280,000, down 8.5 percent from March, TD Ameritrade said. (Reporting by Phil Wahba, editing by Gerald E. McCormick)

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