TD Ameritrade vs. Schwab: The Latest Quarterly Earnings
As they prepare to merge, TD reports daily average trades of 3.4 million in the latest quarter vs 1.6 million at Schwab.
TD Ameritrade’s latest results benefited from high trading volumes that offset lower interest rate-related revenue. The brokerage firm’s strong fiscal third-quarter performance also highlights key differences between it and Charles Schwab ahead of their 2020 merger.
Net revenue for TD Ameritrade grew 6% from a year ago to about $1.6 billion in the period ending June 30. Schwab’s sales fell 9% in the same quarter to roughly $2.5 billion.
Net income for TD Ameritrade was $569 million, up 3% from a year ago vs. $742 million for Schwab, down 21% year over year.
Total assets at TD Ameritrade are about $1.5 trillion, compared with some $4.1 trillion at Schwab.
TD Ameritrade’s advisory assets — 47% of total assets — total roughly $700 billion, while SCHW’s — 46% of total assets — are close to $1.9 trillion.
Net new assets at TD Ameritrade were $32.8 billion in the quarter ending June 30, with $12.8 billion in the RIA channel and $20 billion from retail, or DIY, investors.
Schwab’s net new assets in Q2 were $24.7 billion for the RIA business and $22 billion for DIY investors.
TD Ameritrade “showcased strong asset growth” with an annualized net new asset growth rate of 11% and “client retention remaining strong on the institutional side — boding well for the pending merger with Schwab,” said equity analyst Pauline Bell of CFRA Research, in a recent note.
Commissions, Trading Update
TD Ameritrade’s trading revenue increased 37% from a year earlier to $652 million, while Schwab’s dropped 7% to $183 million.
Average commissions per trade at TD Ameritrade were $1.46 in the quarter ending June 30, down from $6.92 a year ago. Schwab’s average revenue per trade was $1.89 vs. $4.59 a year ago.
“While the headline may be that commissions were cut to $0 per trade in late 2019, TD Ameritrade and other brokers are still generating hundreds of millions in transaction revenue,” said Michael Wong, director of equity research, financial services-North America, for Morningstar Research in his latest report.
“The $0-commission mainly applies to online equity and ETF trades. The retail brokers still charge a per contract fee for options and receive payments for trades from market makers,” Wong explained.
Trading Frenzy
“The more than 300% increase in daily average trades has more than offset the decline in revenue per trade to about $3 from $9 a year ago,” the analyst added.
DATs at TD Ameritrade were about 3.4 million in the quarter ending June 30. Schwab’s figure was about half that at 1.6 million, a jump of 126% from a year ago.
Net interest revenues dropped 21% in the latest quarter, to roughly $303 million for TD Ameritrade. Charles Schwab’s net interest income fell by 14% to $1.4 billion.
Overall, asset-related revenues at TD Ameritrade (including net interest income) weakened 14% from last year to $822 million. This segment at Schwab (excluding net interest income) grew 2% to $801 million.
When analyzing TD Ameritrade, Wong says he’s built in “a 100% probability that its merger with Charles Schwab is completed by the end of 2020 and believe that shares are undervalued.”
— Check out What to Make of Schwab’s Mixed Q2 Results on ThinkAdvisor.