Ameritrade Cuts Work Force by 7%; Discloses Its President Quit Weeks Ago
By STACY FORSTER
WSJ.COM
Ameritrade Holding Corp., still reeling from a decline in stock trading, announced a new round of layoffs Friday and disclosed that the head of its flagship online brokerage unit has quit in an apparent disagreement with the company's founder.
The revelation that Jack McDonnell resigned two weeks ago as president and chief executive of Ameritrade Inc. was a surprise. His departure came weeks after the parent company, following a six-month search, named a Merrill Lynch & Co. executive as its new chief executive. Joseph Moglia's first official day on the job was Thursday.
Mr. Moglia faces the daunting task of helping Ameritrade cope with a competitive environment and a souring stock market . The downturn has curtailed trading and hurt earnings at most online brokers, whose main source of revenue is trading commission. Indeed, Ameritrade has seen its average daily trading volume fall nearly 13% to 114,000 in February from January, and few expect a near-term rebound.
It's not known whether Mr. Moglia played a role in Mr. McDonnell's departure. But he appears to be taking the reins of the company, which Friday said it will lay off 170 customer-service workers, or about 7% of its work force. In January, the company eliminated about 350 customer-service positions.
Donna Kush, a spokeswoman for Ameritrade, declined to discuss Mr. McDonnell's resignation. But in a brief statement and the first public disclosure of his departure, the company said J. Joe Ricketts, Ameritrade Holding founder and chairman, "has decided to take the business in a different direction."
It's unclear what changes in direction Mr. Ricketts and Mr. Moglia, whose background at Merrill Lynch was in sales, have in store for Ameritrade. Neither was available for comment Friday, Ms. Kush said. Mr. McDonnell, who served as Ameritrade president since March 1999, also couldn't be reached.
Richard Repetto, an e-brokerage analyst with Putnam Lovell Securities in New York, said he was surprised by Mr. McDonnell's resignation and word that the company wanted to change direction. "I wasn't aware of the resignation or the apparent change in strategy, with the exception of vigilant reduction of expenses with the market pull-back."
The company said Mr. McDonnell's duties will be temporarily absorbed by J. Peter Ricketts, a senior vice president for strategy and business development at the parent company, and the son of the company's founder.
Like many of its competitors in the online-trading business, Ameritrade is struggling with the stock market's decline. The firm caters to investors who trade independently over the Internet, favoring bare-bones services and low commissions.
Online trading firms, whose primary source of revenue is commission on stock trades, are being forced to diversify their business and find new ways to generate money. Indeed, some have been trying to attract customers by beefing up research and advisory services that could help investors who trade on their own.
Ameritrade, however, has remained committed to what it calls a "focused and deep" strategy, which emphasizes trades over peripheral services such as banking. In heady times, that approach was more successful, as hundreds of thousands of trades filtered through the system each day.
But times have changed, and many firms are fighting an erosion in their revenues and earnings. In its fiscal first quarter ending Dec. 31, Ameritrade reported a loss of $23 million, or 13 cents a share. That compares with a loss of $21.7 million, or 12 cents a share, a year earlier and a profit of $286,000 in the prior quarter. However, revenue rose 13% to $148.2 million.
And the outlook remains bleak. Earlier this month, Ameritrade lowered its revenue estimates for the fiscal year and warned that continuing market weakness will mean a greater-than-expected loss in the current quarter. Ameritrade now expects its loss for the fiscal second quarter ending March 30 will be between seven and 11 cents a share. That compares with earlier estimates for a loss ranging from three to seven cents a share. The company projects revenue of $107 million to $126 million for the current quarter, down from previous estimates of $115 million to $138 million.
The widening losses come as Ameritrade has tried to ramp up trading volume and drive more trades through its system. In February, Ameritrade said it would acquire Tradecast, a Houston firm that caters to active traders by providing direct access to markets. Ameritrade also struck deals this month with Principal Financial Group and Persumma Financial to provide transaction capabilities for 401(k) investors.
The company's attempt to launch OnMoney, a personal-finance portal, also has been a drain on its revenue. Ameritrade has spent $90 million to develop OnMoney, including $48.7 million on advertising in 2000. But the portal reported just $602,000 in revenue and a loss of $78.7 million for 2000. In the first quarter, OnMoney contributed just $200,000 in revenue, while incurring $18.5 million in expenses.
Earlier this month, Ameritrade said OnMoney will post a narrower loss than expected. It is now expected to be four cents to five cents a share, down from previous guidance for a loss of five cents to six cents a share.
Meanwhile, Ameritrade is fighting to cut costs. Citing "increasingly adverse market conditions," the firm announced a new round of layoffs Friday, which is expected to save about $15 million a year. The terminated employees are at its customer call centers in Fort Worth, Texas, and in Omaha, Neb., the company's headquarters. Ameritrade has about 2,300 employees.
"This is a difficult decision to make, but necessary to maintain our strength and position for our long-term success," Ameritrade said in a statement.
Ameritrade is not alone in scaling back its operations. Earlier this month, Charles Schwab Corp. said it would cut 2,750 to 3,400 full-time jobs -- 11% to 13% of its work force -- by year end. CSFBdirect, the online trading unit of Credit Suisse Group's Credit Suisse First Boston, said it would close a customer-service center in Parsippany, N.J., resulting in layoffs of about 150 employees, or 10% of its U.S. staff.
Ameritrade shares were down three cents, or 0.6%, at $5.28 at 4 p.m. Friday on the Nasdaq Stock Market. |
