TD Ameritrade Holding Corp. plans to be a buyer as consolidation continues in the online brokerage market, according to its chief financial officer.

"When the market hits a difficult patch, you start seeing companies that are unable to protect themselves or protect their income," said Bill Gerber, the CFO. "Those companies become a lot more willing to discuss a merger or a buyout when they are under a significant amount of pressure from shareholders. I think time will tell where those opportunities play out, but we are definitely in a position to buy."

The Omaha company says it expects to close its $606 million stock-and-cash deal for thinkorswim Group Inc., a Chicago options trading platform, within 90 days. The deal is expected to add $3 billion of client assets under management in 87,000 retail brokerage accounts; these accounts place an average of 176 option trades annually.

Once the deal closes, TD Ameritrade would have about $281 billion of client assets, 7.1 million accounts, and 350,000 average daily client trades, including 73,000 option trades. Gerber said he expects more deals but that it is hard to pinpoint when they will occur.

"I would say it will be sooner rather than later," he said. "A lot depends on the depths of this recession and whether this stimulus plan can stabilize the economy. That is a big unknown."

Gerber said he expects many of the smaller online brokerage companies will be looking to sell.

"In order to succeed in trading, you need a certain amount of critical mass," he said. "It is extremely difficult to start your own brokerage firm these days and even more difficult to maintain the scale to compete. I mean, some of the dominant firms of our era have been wiped out in the past six months. I think a lot of clients are taking a close look at where they do their brokerage business and are trying to determine if their broker is with a stable company."

Once TD Ameritrade closes the thinkorswim deal, Gerber said, it will have "90%" of the trading tools and products that it needs. He said he thinks any near-term deals will be to add scale.

"We don't have many gaping holes," he said. "The thinkorswim deal adds a … breadth of products and services, but for the most part we are looking for additional scale from here."

Analysts said that they expect more consolidation among online brokerage firms. Smaller firms, like thinkorswim, are facing pressure to increase revenue or sell to larger firms like TD Ameritrade, E-Trade Financial Corp., Scottrade Inc., Fidelity Investments or Charles Schwab Corp.

Geoffrey Bobroff, an analyst at Bobroff Consulting Inc. in East Greenwich, R.I., said TD Ameritrade will have more opportunities to buy "at a discount" because smaller competitors will have a tougher time dealing with difficult market conditions.

Donato A. Montanaro Jr., the chairman and chief executive at Kane Reid Securities Group Inc., a Boca Raton, Fla., discount broker that uses the TradeKing brand, said recent months have been difficult, and that he expects more consolidation in the industry but thinks small companies can still compete. His firm, which was started in December 2005, has attracted 130,000 customers in just more than three years by offering trades for $4.95.

Smaller discount brokerage firms will survive because they have "a certain nimbleness in terms of innovation," he said, and this will continue to give them an advantage. Some larger discount brokerage firms have also had a tough time generating assets and customers because of market conditions.

E-Trade announced last week that in February it posted a steeper slide in new accounts opened than in the month before but that trading volume grew 9.8%. It said that gross new retail accounts opened in February declined 37%, to 62,361, from a year earlier, and 17% from January.

E-Trade said that it has curtailed lending to deal with increased loan delinquencies and chargeoffs. It said that delinquencies of 30 to 89 days fell 16% in the first two months of the year and that delinquencies of 30 to 179 days are down 1%.

TD Ameritrade said that its average daily trades increased 12% in February, to 306,000, from a year earlier. Client assets under management at Feb. 28 totaled $210 billion, down 32% from a year earlier.

Jason Ren, an analyst at Morningstar, said TD Ameritrade's transactional revenues held up well late last year when persistent market volatility compelled people to trade.

TD Ameritrade generated $24 billion in net new assets last year. Gerber said the company was "among a rarefied group of companies that had a strong year last year." He said he expects "high single- or low double-digit" growth this year.

"I think we really were able to benefit from the dislocation that happened on Wall Street," he said. "People are rethinking where they want to have their financial relationship, and we are the beneficiary of a lot of money in motion."

Gerber, who has worked for TD Ameritrade since 1999, said that he thinks 2009 will be a "watershed year" in the financial services market as regulators and companies adopt post-recession strategies. TD Ameritrade is positioned be opportunistic, he said.

"There is a shrinking set of online brokerage companies, and we are certainly benefiting as it shrinks," he said.

To grow organically, TD Ameritrade wants to work with Toronto-Dominion Bank, which owns a minority stake, Gerber said. He said he hopes to find ways to cross-sell brokerage products to the bank's customers.

"The profile of the TD Bank client in the [United States] is really the type of client that we have and that we want to have more of," he said. "We are certainly trying to move down that road of leveraging and sharing the branch as much as we can to attract their clients to do their brokerage business at TD Ameritrade."

An important component of future growth, he said, is getting "more assets and more share of wallet" by offering customers a broader products and services menu.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.