October 23, 2008 / 12:02 PM / 10 years ago

UPDATE 4-TD Ameritrade profit down 14 pct; new assets decline

* 2009 earnings forecast is below analysts’ view

* Net new assets down 30 percent from previous quarter

* Key trading measure jumps 40 percent August to September

* Shares off 1.5 percent (Adds CEO interview, analyst comment, Wall Street’s 2009 forecast)

By Jonathan Spicer

NEW YORK, Oct 23 (Reuters) - TD Ameritrade Holding Corp (AMTD.O) reported a 14 percent decline in quarterly profit due to a smaller stable of new assets and higher costs, but volatile trading last month gave the discount brokerage what may be a short-lived boost.

The company, which needs small investors to stay active in the markets, also said on Thursday it expects choppy trading to calm going into next year, and it forecast 2009 earnings below analysts’ expectations.

Ameritrade shares fell as much as 3.3 percent in morning trading and were down 1.5 percent at midday.

Ameritrade’s key trading measure — daily average revenue trades, or DARTs — soared 40 percent from August to September, boosting revenue in a quarter that included wide market swings and the beginning of the recent stock selloff. But net new assets slipped 30 percent from the previous quarter.

The figures suggest Ameritrade may be reaping a short-term benefit from recent volatility; pain may be on the horizon if a prolonged market slump spooks small investors.

“As we look out into the marketplace, we see a higher level than normal of uncertainty,” Chief Executive Fred Tomczyk said on a conference call. “Clearly, we are in unprecedented times.”

Tomczyk said in an interview that DARTs — trades that generate revenue through fees or commissions — will likely set another record in October, but he acknowledged that small traders could pull back as the economy slows.

Analysts have recently downgraded the stocks of some online brokers, warning that fear in the marketplace will inevitably stamp out the high volumes they now enjoy.

“Once you scare the mom and pop investor, they take their money, stuff it in their mattress, and don’t come back to the market for a very long time,” said Brad Hintz, analyst at Sanford C. Bernstein.

Ameritrade earned $172.0 million, or 29 cents a share, in the fiscal fourth quarter ended Sept. 30, down from $200.4 million, or 33 cents a share, in the same period a year earlier.

Revenue rose 13 percent to $649.2 million. On average, analysts polled by Reuters Estimates expected the Omaha, Nebraska-based company to earn 32 cents a share on revenue of $608.7 million.

In July, the company issued a forecast that implied earnings of about 29 cents a share.

Looking ahead, Ameritrade forecast earnings of $1.10 to $1.42 per share in fiscal 2009, compared with $1.32 expected by analysts and $1.33 in the year just ended.

With online brokers competing fiercely for the attention of small investors, Ameritrade’s expenses jumped 40 percent, due partly to increased advertising but also due to losses in money market funds, which had been expected.

Fox-Pitt Kelton analyst David Trone wrote in a note that costs were “surprisingly high, and led to negative operating leverage.”

Ameritrade relies on trading revenue more than its closest rival, Charles Schwab SCHW.O, but has said it wants to expand its base of client assets. On Thursday, Ameritrade forecast a decrease of up to 14 percent in overall trading next year.

Schwab and E*Trade Financial (ETFC.O) reported quarterly results earlier this month and were hurt to different degrees by expectations that a slowing economy will weigh on profit growth.

Smaller online broker TradeStation Group TRAD.O reported a small drop in quarterly profit on Thursday but beat Wall Street expectations. [ID:nBNG410719]

Tomczyk, who was named Ameritrade CEO on Oct. 1, said the “uncertain market” can still create growth opportunities. He took the reins from long-time Ameritrade CEO Joe Moglia, who is now chairman.

Toronto-Dominion Bank (TD.TO) owns a 39.9 percent stake in Ameritrade, whose shares have fallen 25 percent this month. The shares were down 18 cents at $11.82 at midday. (Editing by Matthew Lewis and John Wallace)

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