TD Ameritrade’s first earnings report in the era of 0% commissions shows why the brokerage is now poised to merge with competitor Charles Schwab: The Omaha firm’s trading revenue and net earnings are both down sharply.
During the quarter that ended Dec. 31, TD Ameritrade’s trading revenue dropped 43% from a year earlier, from $537 million to $305 million. That helped depress earnings to 70 cents per share in Tuesday’s report, down from $1.07 the previous year.
In October, TD Ameritrade announced that it was eliminating commissions for online trading of U.S. stocks, exchange-traded funds and options. The move was in response to Schwab’s similar move hours earlier, completing a “race to zero” over several years in the industry.
It’s believed that the revenue losses from the shift helped spur TD Ameritrade’s announcement in November that it was being acquired by Schwab in a $26 billion megamerger of leading brokerages. Industry experts say company scale will be important in the era of reduced fee revenue.
TD Ameritrade officials noted Tuesday that 0% commissions led to record trading, as the company for the first time in its history averaged 1 million trades per day during the quarter. Zero commissions also helped attract more clients and account dollars, which partially offset the commission losses.
Most of TD Ameritrade’s revenue comes from asset-based fees it charges customers.
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Steve Boyle, the firm’s interim CEO, said the account and asset growth seen in the zero commission environment showed the value customers put on TD Ameritrade’s services in a market where all competitors are charging the same. Boyle noted that the company on Tuesday was named No. 1 overall broker by StockBrokers.com and that its trading platform was also ranked the best.
Boyle called it “a badge of honor for our employees who have remained committed to our mission and purpose over what has been an eventful quarter.”
Now the company is looking ahead to pooling its expertise and resources with Schwab’s, he said. Boyle said that until the merger closes, expected in the second half of this year, the two firms will “continue to operate as separate entities focused on growing and retaining client relationships.”
The earnings results fell short of Wall Street expectations. Analysts on average had been expecting 77 cents per share. The company said the earnings per share were adversely affected by 6 cents due to a number of factors, including a leadership transition and professional services related to the merger.
This report includes material from the Associated Press.