| 19 January 2010

TD Ameritrade (AMTD) is the first heavy-hitting online broker to lay some Q4 results on us and what we see is a decrease in new account production and trading activity, but total assets continuing to grow. This is not necessarily good news in a "near-zero interest rate environment" as they say in their release -- where companies are rewarded more for activity than asset balances.

Recognizing this predicament, we're pleased to see Fred Tomczyk, president and CEO of AMTD, meet the challenge head-on. "We have taken a number of steps over the last year to mitigate the impact of the near-zero interest rate environment," he said . "Everything we did this quarter, from investing in client account and asset acquisition to improving the flexibility of our capital structure, was done with a view towards our long-term growth."

Emphasizing long-term growth and position is what one must do when you report negative results. The company's net income of $136 million on Revenues of $625 million. This is a 12.8% decrease in net income vs. last quarter and a 26% decrease vs. year-ago figures. The company's quarterly EBITDA fell 16.6% versus 2008 to $271 million.

But trying to think positive, sometimes storm clouds are just what you need to kick-start a healthy growth spurt. Despite the weak production the stock is holding its own today, and this makes sense to us. We continue to believe that TD Ameritrade is one of the stronger brokers in the space, certainly much stronger than E*TRADE Financial (ETFC) which is still trying to clean up its balance sheet and optionsXpress (OXPS) which relies on active traders, more than asset growth, to push its revenue. (Both firms are scheduled to report results next week.)

The thing to keep in mind is that 2009 was actually one of the better performing years in the stock market (believe it or not) and brokers' results typically mirror the results of the stock market in general. So we are not that excited by moves designed to capture some potential future growth spurt, which may never come (and technically already did come). Instead, we get excited when we see firms that treat this economic environment like the new normal.

A mixed review, to be sure. And well-deserved.