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Non-Tech : TD Waterhouse Group (TWE) -- Ignore unavailable to you. Want to Upgrade?

To: Achilles who wrote (1189)	4/16/2000 12:53:00 PM
From: BWAC	Read Replies (2) \| Respond to of 1413

I think all this margin comparison to revenue percentages is kinda missing the exact point. Try measuring the total dollars margined as a percentage to total customer assets. I bet you come out to well under 7 or 8%. So why is it so unreasonable to think that customers in aggregate wil continue to borrow at that same paltry 7% rate? Disclosure: I have not done the numbers for TWE, but I did SCh, AMTD, and EGRP a month or so ago. SCH was 2%, AMTD was 7%, EGRP was 8%. Maybe somebody can do TWE's, too much tax still to do here. Statistics, percentages, and all relevant numbers can at times lie if not examined in the proper perspective.

To: Achilles who wrote (1189)	4/16/2000 3:54:00 PM
From: Proton	Respond to of 1413

Re: So What's Three Per Cent? According to TWE's annual report, "net interest revenue" (i.e., the difference between what they pay for cash in your account and what they charge for margin) came to 186m of 960m total revenues, which is just under 20%. Should I be thanking you for making my point? :-) In case the difference between sub-twenty and 22 is important to anyone: 1. I cite Barron's, which cites Sanford Bernstein and company reports. Take it up with them. 2. A fiscal year report does not account for the increase in margin over the last two quarters. Let's see what the numbers look like for the quarter ending in March. Then let's see what they look like for the current quarter. ;-) Any large shrinkage of margins will obviously affect this income. Margin calls, however, are not necessarily a bad thing for the broker. If a customer sells stock to cover his margin, TWE makes a commission. If a customer writes a check, then TWE's total assets will be increased. TWE only loses if the punter learns his lesson and avoids margins. 1. Forget about customers "writing checks." The vast majority of margin calls are not met. Even fewer than normal were satisfied last week. 2. Take one-hundred shares of stock trading at 50, held at 50% margin. Over the course of a year, that position generates roughly $200 in interest. The commission on one sale is $12. Even accounting for the interest spread, it's clear that the loss of recurring income will never be recovered. 3. Even the most abtuse punter will be unable to re-enter the margin game, because of their grievous losses due to forced liquidation. Waterhouse will not see its March quarter margin revenues for a long time. Perhaps never. If margin debt goes from February's level of $265 billion to last year's $151 billion, gross margin interest paid will decrease by $9 billion. If the spread is two points (not out of the question), then the brokerage industry will be out nearly $2 billion in net revenue. That will hurt Waterhouse, MSDW, E-trade, and the rest of them. Breaks my heart. No, really! :-) Regards, P.