| 27 October 2009

Executives at TD Ameritrade (AMTD) didn't read our memo. They decided to report an earnings win "despite" a tough economic environment. "Despite facing challenges related to struggling stock markets, a near-zero interest rate environment and an economic recession," says the release today, "the Company delivered a strong financial performance."

Apparently they operate in a different economic environment than most financial services firms. As we reported earlier, Goldman Sachs (GS) made so much money last quarter that it has decided to launch a "Charm Offensive" to ward off grouchy regulators and grumbly laid-off workers.

You've all heard the old adage about the gold rush, right? That precious few actually made money digging for gold. The real money was made selling tools, implements and Levi's 501 jeans. We think, perhaps, we're in the midst of a new type of gold rush; one in which the gold-diggers are making the money (primarily through complex derivatives and high-frequency trading) and the poor suckers selling the implements (brokers) are getting squeezed.

Even the brokers in a position to support prosumer high-frequency trader types like Interactive Brokers (IBKR) have been killed this quarter. But more on this in a later post.

As for TD Ameritrade's earnings? The company was quick to convey strong year-over-year growth, including a lot of "records." Record average client trades per day (372,000), record net new assets ($27 billion) and record gross new accounts (737,000).

While their transaction-based revenues did increase they got killed on the asset-based revenues, especially interest revenue. This led to a 20% dip in net income to $644 million. We're not sure if that's a record.

Quarter-over-quarter figures fared slightly better. The company only saw a 9% dip in net income (to $156 million) compared with Q3 2008. This is also roughly 9% less than the $170 million reported in Q2 2009.

The increase in trading activity and transaction-based revenues and the sustainability of client assets does represent some stability in the core brokerage business.

We expect E*TRADE Financial (ETFC) to report after the closing bell this afternoon. We suspect, yet again, we'll hear more about the "tough economic enviroment," despite a 60% gain in the S&P 500.