The Omaha discount brokerage Ameritrade Holding Corp. said Tuesday that net income for its fiscal third quarter, which ended June 24, rose 20% from a year earlier, to $74.7 million, or 18 cents per share.
The profits matched analyst estimates. Ameritrade, which is acquiring TD Waterhouse USA from Toronto-Dominion Bank, credited the increase to the higher interest rates it charged on loans to customers for trading.
Interest from margin accounts almost doubled, to $137.4 million, as nine Federal Reserve Board rate increases in the past year allowed Ameritrade to increase its rates as well.
The TD Waterhouse deal, announced last month amid a slowdown in trading over the Internet and industrywide price cuts, would make Ameritrade the world's biggest discount brokerage.
"The Fed's raising rates helps them out dramatically, because of all the margin lending they do," said Richard Herr, an analyst at Keefe, Bruyette & Woods Inc. in New York, who has an "outperform" rating on Ameritrade's stock and does not personally own the shares.
"It was not necessarily an easy quarter in terms of trading volumes, but they produced some pretty good results," he said.
In May, Ameritrade cut its earnings forecast for this fiscal year and said that investors were waiting for signs of economic growth before putting more money into the stock market.
For the fiscal third quarter, Ameritrade reported that average daily client trades fell 15.2% from a year earlier, to 139,000. As a result, commissions and clearing fees fell 17%, to $113.1 million.
Joseph H. Moglia, Ameritrade's chief executive officer, said on a conference call with investors that last month's trading volume rose 8% from May.
"The markets were a little bit better" last month, he said. "There was some better economic data."
Mr. Moglia, 56, also said the interest rate increases had helped his company achieve a better revenue balance. The percentage of fiscal third-quarter net revenue it generated from commissions fell to 48%, from 62% a year earlier, while the percentage from interest income, minus brokerage interest expenses, rose to 42%, from 32%.
Ameritrade's client assets under management rose 9.4%, to $78.8 billion as of June 24. On that basis, the brokerage ranks behind Charles Schwab Corp., TD Waterhouse, and E-Trade Financial Corp.
The deal for TD Waterhouse is set to close in the next six months and values TD Waterhouse at about $2.25 billion.
Mr. Moglia said he expects further consolidation to reduce the number of online brokers to less than 40 in three to five years, from about 100 now. That compares with about 200 in the spring of 2001. Of those left after the consolidation, only about three will be recognized as having a significant online presence, he said.
