NEW YORK (Reuters) - TD Ameritrade Holding Corp (AMTD.O) said on Thursday its first-quarter profit rose 65 percent, as trading activity and client assets rose, prompting the brokerage to boost its 2008 profit forecast despite signs the U.S. economy is weakening.
"We do expect a pullback, but we do not expect to go into a recession," Chief Executive Joe Moglia told an investor call.
It boosted its fiscal 2008 net income guidance to a range of $1.23 to $1.41 a share from $1.15 to $1.39. Analysts on average expected TD Ameritrade to earn $1.36 this year, according to Reuters Estimates.
Short of "catastrophe" TD Ameritrade expects to deliver on its forecast, Moglia said in an interview. "The numbers that we gave for the rest of the year, we expect to hit that even if there is a pretty reasonable downturn in the market."
Shares of TD Ameritrade were off 5.3 percent to $17.99 in afternoon trading on Nasdaq amid a broad decline in stocks on renewed economic worries. The S&P investment banking and brokerage index .GSPINVB was down 4.8 percent.
"My main concern is whether TD Ameritrade can continue to perform as well in a declining stock market," said Robert Ellis, senior analyst with Boston-based consulting firm Celent.
Ellis said TD Ameritrade is third after Charles Schwab SCHW.O and Fidelity Investments in serving independent registered investment advisers, a market that is also seeing slower growth.
Stock market indicators such as the S&P 500 index .SPX and the Dow Jones Industrial Average .DJI have fallen 6.5 percent and 6 percent respectively since the start of the year though Wednesday's close and fell further Thursday.
So far, TD Ameritrade has benefited from recent rocky market conditions, as it has led to higher trading activity.
The firm posted record net income for its first quarter ended December 31 of $240.8 million, or 40 cents a share, from $145.6 million, or 24 cents, in the year-ago period. Revenue rose 20 percent to $642 million, fueled by a sharp increase in commissions, net interest income and asset-based fees.
Analysts on average expected the Omaha, Nebraska-based brokerage to earn 38 cents a share in the quarter on $637 million in revenue, according to Reuters Estimates.
TD Ameritrade's average trades per day, a key measure for the sector, rose to 322,000 in the quarter from 238,000 a year ago. For the month of December, DARTs fell to 287,000 per day from 339,000 in November.
Moglia said the firm, which has spent the past few years expanding its asset management business to reduce its reliance on trading revenue, was starting to see efforts to attract long-term investors pay off, which will help it weather a market slump.
On the brokerage side, TD Ameritrade said it benefited from defections at rival E*Trade Financial Corp (ETFC.O), which was hit by large losses in its mortgage business last year, spooking customers and investors.
TD Ameritrade said about 25 percent of net new assets in the quarter came from former E*Trade customers, accounting for about $2.3 billion in inflows.
Moglia added that the average size of accounts being transferred to TD Ameritrade from E*Trade was $250,000.
E*Trade, which is due to give details of its turnaround plan when it posts quarterly earnings on January 24, declined to comment on TD Ameritrade's comments.
E*Trade said last week that client assets appear to have stabilized, ending the year with client assets of $190 billion, down only slightly from the $192 billion in late November. The firm also said it added 87,000 gross new accounts in December.
TD Ameritrade spent almost 50 percent more on advertising in the first quarter from a year ago, aggressively pursuing rival brokerage business.
An ad campaign that runs through this month offers a limited-time cash incentive to those transferring accounts from rivals.
It also is interested in buying brokerage accounts from E*Trade, Moglia said, adding that it would first have to weigh the "tremendous" risks and rewards of such a transaction.
Both TD Ameritrade and Charles Schwab have previously said they would consider acquiring rival brokerage businesses.
E*Trade received a $2.55 billion cash infusion from Citadel Investment Group in late November, giving the Chicago hedge fund a stake of nearly 20 percent.
(Additional reporting by Joseph A. Giannone; Editing by Dave Zimmerman/Tim Dobbyn)
Reporting by Lilla Zuill