TD banking on its discount brokerage
Focus on waterhouse: Record first-quarter earnings exceed expectations
Katherine Macklem
Financial Post
Toronto-Dominion Bank is looking to its rapidly growing discount brokerage business -- which could be partially spun out as a public company -- as the key to future growth, bank executives said yesterday as they reported record first-quarter earnings.
The first of Canada's big banks to report earnings this year, TD Bank exceeded analysts' expectations with net income of $312-million ($1.01 a share) for the three months to Jan. 30. That's up 6% from the year-ago period and 8¢ a share more than the average of analysts' expectations, as reported by the investment research group First Call Corp.
The bulk of the bank's earnings were made in the corporate and investment banking division, which reported net income of $215-million, up 23% from the year-earlier quarter.
But the area of growth, and the focus of the bank's discussion yesterday, was the discount brokerage business, which falls under the umbrella of the wealth management division. That sector's net income doubled to $49-million, with most of that growth generated by Waterhouse, the bank's U.S. discount and online brokerage powerhouse.
The discount brokerage business is "our number one strategy -- it's the cornerstone of the strategy of the bank," said Dan Marinangeli, TD's senior vice-president for group finance.
But even though Waterhouse has captured market share, a new study says it is lagging in terms of client satisfaction.
Waterhouse's online customers "were so unenthusiastic about their broker's site design, advice, site performance and transaction confidence, that the broker placed an insurmountable last in all four categories," said the report by Kenneth Clemmer, an analyst with Forrester Research Inc.
TD Bank will decide within the next few months if it will spin out a portion of the discount brokerage business in a public entity, said Charles Baillie, chairman and chief executive of the bank.
"It would give the bank a currency for consolidation in this industry," he said, adding it would also boost the brokerage's profile. "On the other side, it is a dilution of our best asset."
Duncan Gibson, vice-chairman of the bank, said it has been "aggressively" growing this business. The discount brokerage business was targeted because it is increasingly the choice opted for by high-end clients. He compared the number of trades made by TD's brokerage lines, at an average of 98,000 a day, with the number of transactions made on the Toronto Stock Exchange, which averages 52,000 trades a day.
Frank Petrilli, president and chief operating officer of Waterhouse, said: "Waterhouse is operating in an industry that is experiencing explosive growth . . . and Waterhouse continues to gain significant market share of that incredibly explosive growth industry."
He said trade volume is up 180%, while the average commission is down about 30% because more business is conducted electronically, which delivers a smaller commission to Waterhouse. |
