The Case For Optimism at TD Ameritrade
Shawn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Remember when you visited your middle school as an adult and were shocked at how small the lockers were? The lockers didn’t change, just your perception of them. That is how I felt today when I read the number of client assets held at TD Ameritrade (NYSE: AMTD): $407 billion. That’s it. Some of you are probably thinking that I am crazy for thinking $407 billion is small. It is a huge number when you compare it to other things; if TD Ameritrade assets were its own country, only 26 countries have greater GDP. I get it. But compared to other asset managers, essentially AMTD’s competitors, you get a different perception;
Total Client Assets (as of 10/31/2011)
Schwab (NYSE: SCHW) - $1.8 trillion
Vanguard - $1.6 trillion
Fideltiy - $1.5 trillion
This shows AMTD has ample room to acquire more customer assets, which is important to the bottom line. In a presentation at the KBW Securities conference, CEO Fred Tomczyk laid out the sensitivity to various bottom line impacts that are all effected by new assets.
• 3K average client trades per day = $0.01
• 0.05% funded activity rate(1) = $0.01
• $4.5B fee-based assets(2) = $0.01
• $0.5B spread-based assets(3) = $0.01
• 26K new accounts = $0.01
(1) Funded account activity rate. Average client trades per day during the period divided by the average number of total funded accounts during the period.
(2) Client assets invested in money market mutual funds, other mutual funds and Company programs such as AdvisorDirect and Amerivest, on which we earn fee revenues.
(3) Client and brokerage-related asset balances, including client margin balances, segregated cash, insured deposit account balances, deposits paid on securities borrowing (excluding conduit-based assets) and other cash and interest-earning investment balances.
Even taking 5% of the assets from each of the three competitors above would equal around $250 billion or roughly 61% higher than today. Couple that with an eventual fed rate increase (they labeled this in the same presentation but I excluded due to its non-control by the company) and investors could be looking at greater margin increases.
Fool blogger Shawn Robinson does not own shares in any of the companies mentioned in this entry.