Did Interest Income Gains Offset Lower Trading Commissions For TD Ameritrade In Fiscal Q3?

by Trefis Team
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TD Ameritrade (NASDAQ: AMTD) is slated to release its fiscal third quarter results after market close on Tuesday, July 22 and Trefis expects interest income from margin receivables to offset lower trading revenues. Per Trefis estimates, Ameritrade’s stock has a fair value of $58, which is roughly 15% ahead of the current market price. We have summarized our quarterly and full-year expectations for Ameritrade’s earnings in our interactive dashboard. You can modify any of our key drivers to gauge the impact changes would have on Ameritrade’s valuation, and see all Trefis Financial Services Data here.

A Quick Look at Ameritrade’s Revenues

Ameritrade reported $5.4 billion in Total Revenues for its fiscal year 2018. This included five revenue streams:

  • Commissions and transaction fees: $1.9 million in FY2018 (36% of Total Revenues). A trading commission is charged for executing trades in stocks, bonds, options, futures, etc.
  • Net Interest Revenue: $1.2 billion in FY2018 (23% of Total Revenues). It is the interest earned on loans and margin receivables net of interest expense on funding sources.
  • Bank Deposit Account Fees: $1.5 billion in FY2018 (28% of Total Revenues). It is earned for providing cash management services such as deposit accounts and money market mutual funds.
  • Investment Product Fees: $557 billion in FY2018 (10% of Total Revenues). It is the fee earned on client assets invested in investor programs, mutual funds, and money market funds.
  • Other Revenues: $113 million in FY2018 (2% of Total Revenues). It includes proxy income, solicit and tender fees, and income from other ancillary services.

A brief look at the previous quarter performance (fiscal Q2)

  • In the second quarter, Ameritrade reported a sequential drop in net revenues, primarily due to a steep decline in trading activity compared to the first quarter.
  • Ameritrade generates nearly 35% of its net revenues from trading commissions and reports significantly higher DARTs than its peers Schwab and E*Trade.
  • Bank deposit fees remained flat sequentially, primarily due to stable account balance during the second quarter.
  • Though interest-earnings assets followed an upward trend in Q2, interest revenues declined primarily due to lower margin receivables that generate the highest yield among the spread-based assets.


What to expect from the third quarter results?

  • According to monthly metrics released by Ameritrade, DARTs for April and May came in at 817k and 863k, respectively. Average DARTs have been consistently falling since January.
  • With VIX in the moderate range over the last three months, we expect Ameritrade to report a sequential decline in trading revenues driven by lower average DARTs for the third quarter.
  • Consistent with the increase in interest-earning assets, margin receivables observed a slight improvement of 2% in April and were followed by a similar increase in May.
  • Ameritrade’s average bank deposit account balance, which had been growing steadily in the last two quarters, observed a decline during the months of April and May.
  • Considering the aforementioned trends in operational metrics, we expect Ameritrade to report mixed-results for the third quarter with a decline in trading commissions and a slight upside from net interest income.

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