Morningstar | TD Ameritrade's Integration of Scottrade Appears to Have Been a Success
Over the next three years, we project pretax operating income to increase more than 50% as a result of revenue growth and operating margin expansion. Interest-rate-related revenue remains the key driver of medium-term earnings. Of the company's interest-rate-sensitive balances, we estimate over 40% is more leveraged to short-term rates than long-term rates, so there are immediate benefits as the federal-funds rate increases. Thanks to its unique relationship with Toronto-Dominion, TD Ameritrade won't have to retain capital to increase its interest-rate-related income, so it can increase its dividend or share-repurchase activity along with earnings.Material earnings growth is almost assured due to recent activity in interest-rate markets. Many, including us, believe that the U.S. Federal Reserve will continue raising short-term interest rates. Additionally, the company should be earning more than a 1-percentage-point higher revenue yield on its client cash balances at Toronto-Dominion Bank due to higher long-term rates. We expect the sharing of interest-rate increases with clients to be more modest at the online brokerages than other financials, as "trading cash" awaiting investment is largely rate-insensitive. The trading cash is made up of traders hoping to put the cash to use, instead of people shopping around for the highest certificate of deposit rate.Our projection of a more than doubling of interest-rate-related revenue will more than offset recent competition in commission pricing. We maintain our opinion that blatant commission pricing wars are a negative-sum game, but that there's a good chance that commission pricing will continuously decrease over time. That said, TD Ameritrade, especially after merging with Scottrade, has entrenched itself as one of the leading online brokerage and RIA custodian players and will remain one of the more profitable companies in the space.TD Ameritrade's integration of Scottrade appears to be going well. Account attrition was minimal and much of the expense synergy savings has been realized. Any revenue synergies will be a bonus.TD Ameritrade Holding is a holding company. Through its subsidiaries, the company is a provider of securities brokerage services and related technology-based financial services to retail clients and independent registered investment advisors. The products and services available to the company's clients include: common and preferred stock, Exchange-Traded Funds, options, futures, foreign exchange, mutual funds, fixed income, new and secondary issue securities, margin lending, cash management services, and annuities. The company provides the client service and support through the following means: websites, branches, email, telephone, TTY services for the hearing impaired, and mobile app.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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