TD Ameritrade Holding Corporation reported earnings yesterday, and the company's conference call discussed its strategy of pushing client assets from money market funds into bank MMDAs (money market deposit accounts). We quote the content relating to money markets from the call below.
TD Ameritrade CEO Fred Tomczyk said, "The near zero interest rate environment also brought an opportunity to do something positive for our clients and for the firm. Clients want capital preservation, liquidity and yield, in that order. Our new cash strategy moved $10 to $14 billion of our cash sweep balances to an insured MMDA product that better meets client needs and positions us well for a rising interest rate environment.... We ended the year where we began, with more than $1 billion in liquid assets."
He continued, "Our cash management strategy also helped mitigate the impact of near zero interest rates. As a result, we have fewer client assets in money market mutual funds and more with higher yielding MMDA balances, a product that offers advantages for both the client and for us. We see considerable upside for our business in a rising interest rate environment.... Given where we are in the interest rate cycle, the odds of an interest rate increase are higher than the odds of an interest rate decrease at this point. And the upside potential of an increase in interest rates is significant."
CFO Bill Gerber said, "If you can grow balances, you can minimize and sometimes reverse the impact of the NIM [net interest margin] contraction on spread-based revenue.... The primary driver of our NIM rate contracting was a $6 billion increase in our MMDA portfolio from the end of June. This is a 25% increase in the portfolio size, primarily a result of our cash management strategy. As we invested these proceeds, the rate we received was lower than our prevailing NIM. So the rate contracted on the whole MMDA portfolio. This is actually a good problem to have as our portfolio is set up nicely for a rising rate environment."
He added, "In December, we are going to begin using the term Insured Deposit Account, or IDA, instead of MMDA, as this is the name under which we market the product to our clients.... The increase in MMDA balances corresponds with the decrease in money market fund balances. This was our stated goal, and we have achieved it. Since we announced the program, MMDA has grown $10.6 billion. We are progressing nicely through our current process of ongoing marketing efforts, explaining the benefits of the MMDA program to clients in an attempt to drive more assets there. And we expect to complete the next phase in January 2010, when we move the $4.6 billion now on our balance sheet to the MMDA program. We still expect continued growth in our MMDA balances as client assets grow and marketing efforts continue. Finally, ... total client cash is up about $5 billion since March."
During the Q&A, Gerber said, "Money market fee waivers were $20 million this quarter, which was identical to last quarter." They noted that, "Six billion was the shift from money fund clients to MMDA." Finally, TDA said there were, "Reserve Fund charges [to protect investors from "breaking the buck"] of $36 million in last year's numbers." See too The Wall Street Journal's story "Ameritrade 4Q Profit Down But Trading Strong".
