This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha
Run a conservative balance sheet
” we do run a unique and differentiated business model. We are an online broker and agency broker. We really don’t carry much on our balance sheet. All you’ll see in our balance sheet is margin loans and securities lending and intangibles for the most part.”
most trades per day of anyone in the sector
“we’ve been the leader in the trading side of the business. We have the most trades per day of anyone in our sector.’
We like derivatives
“Derivatives, we like for a couple of reasons. Number one, on options in particular they tend to have a richer commission per trade. Number two, is they expire, which means that you have to continuously [ph] re-put (03:35) on your position or adjust your position. So, it has a resiliency to it that basically you don’t see in a lot of equity traders. And number three, an option trader or a futures trader can trade in almost any market.”
Unique relationship with TD Bank
“The unique relationship with TD. TD Bank owns 40% of us, and there is a shareholders’ agreement between them and the company. And the Ricketts family, who are the founders of the company, who own about 10% or 11% of the company. And so, there is an agreement there that explains how the two parties will work together, certain governance rights on the board.
But it does – we have a big relationship with them in terms of how we do our client cash strategy. So, we allocate much of our client cash to a bank deposit account on TD’s balance sheet and when it return, we do the asset liability management and we invest of to – basically, on synthetic bond letter [indiscernible] (07:03) LIBOR swap curve.
That allows us to take much of the economics of deposit banking”
Well positioned for higher rates
“we’re very well-positioned for rising rates. We gave you the disclosures in our statements here. You can see that we’re up 100 basis point parallel shift in the yield curve. In the first 12 months, that would add about $0.36 per share in earnings to our earnings level. In the second year it will be $0.44, and in the third year it’d be $0.50 as the bond ladder rolls over at higher rates.”
It would be nice to have rising rates as a tailwind
“We’ve been in a near-zero interest rate environment here for almost six years. It’d be nice to have a – it has a tailwind. It’s not a headwind anymore, but it’d be nice to see it as a tailwind”
If you want to be a big asset gatherer, you’ve got to be independent
” In the RIA channel, which is say, the fastest growth channel in wealth management. So, I think, if you want to be a premier asset gatherer in today’s world, you’ve got to be in to be independent whether as a broker, dealer or RIA. We’re purely the RIA model.”
There are really four competitors in this channel
“In that channel, [indiscernible] (18:42) really is the big vendor or ourselves, Schwab, Fidelity and Pershing”
On the RIA side our technology sets us apart
“I’d tell you in the RIA space, our value proposition has probably had more sophistication and support tools for the derivative side for overlay strategies and technology that’s more, we would call it client friendly and more advanced.”
Differences between us and Schwab
“I think I’d say, Schwab is much more of a discount full service model. So very much push you into an adviser. I’m not saying that’s wrong. I think that’s their approach to the market. And they’ve moved up market, we’re a much more online-centric, and technology and education-based. And so, it’s just different.
We will appeal to – more to self-directed investors and active traders and people that want to be engaged and want to do it themselves. I think they will appeal more to people that may have been with the wirehouse today. But we both pick up a lot of our business from the wirehouses and independent broker-dealers, because we do what they do, but in a much less expensive way”
Can’t take anything for granted on a bank transaction
“being a bank transaction, you have to get the approval of federal reserve and anybody in banking will know that basically you’re watching M&T and [indiscernible] (25:50) Hudson or whatever the one they do, but it’s sitting out there for two years, waiting for approval. So, I think there’s nothing that we’re aware of that will get in the way from an approval point of view. But I think in today’s world, getting a bank transaction approved I think you can take nothing for granted.”
We need a little bit more volatility for engagement
“You know I think we definitely saw the slowdown, particularly I’d say the last two weeks of August. And so, we will release our DARTs Wednesday. So, definitely it did slow down and it was a slower summer. I would say since then we’ve seen people come back, which is, again, not abnormal. [indiscernible] (30:11) see after the Labor Day weekend people start to get back and engage in the markets.
There’s lots of different views right now on whether the market is going to rise or something else is going on. There’s a lot of geopolitical risk. But for whatever reasons, the equity market seems to have fought through all the geopolitical risk. I’m surprised there’s not more volatility in the market personally. And if we’ve seen – relatively, I think you’ll see trading go even faster. But I think sentiment is pretty good. It’s just – we now – we need a little bit of volatility.”