IBKR - Interactive Brokers

[AccentricInv]

Random Question - Is there a way to get email alerts on press releases and SEC filings via IBKR's website?  They don't seem to have a subscription option, like many other IR sites.

[Travis Wiedower]

Random Question - Is there a way to get email alerts on press releases and SEC filings via IBKR's website?  They don't seem to have a subscription option, like many other IR sites.

 

I have their IR page setup through changedetection.com. Though I just set it up recently so I'm not sure if it works or not yet since the IR page hasn't been updated the past few days. Some websites work great through changedetection and some don't.

[KCLarkin]

CEO mentioned some interesting growth stats on last call:

 

"by region, America is 12%, Europe is 11% and Asia is 29%."

 

"individuals were 12%, hedge funds were 15%, prop traders were 9%, advisors were 14%, introducing brokers were 29%."

 

(Believe this is YoY growth in # of accounts).

 

Stock sold off sharply after earnings. Now trading at 22.5x earnings (ttm).

[kab60]

I finally started a position. I really like the prospects and think there is a lot of optionality. I didn't however understand the remarks on the CC re. the market maker business and how they might build their own platform - first via a simulated try (questions asked by Rob Koehn). Anyone caught that?

[fisch777]

That was pretty out of left field and definitely a risk now. 

I think alot of investors were banking on them eventually special dividend-ing out the excess cash from MM unit and TP pretty much squelched that idea on the call, instead suggesting they might build MM into something totally different, ie Virtu-like.

[frommi]

That was pretty out of left field and definitely a risk now. 

I think alot of investors were banking on them eventually special dividend-ing out the excess cash from MM unit and TP pretty much squelched that idea on the call, instead suggesting they might build MM into something totally different, ie Virtu-like.

 

Its even worse, he sounded like he wants to built the cash cushion even further. So earnings are reinvested at a zero rate. I don`t know if its a good idea to subtract excess cash from EV in this case.

[fisch777]

Agreed, but he's always stated that excess cash is competitive advantage they would work to build/maintain.  I haven't ever backed it out of my model.

[Travis Wiedower]

Peterffy made sure to clarify it was an analyst that made the Virtu comparison, not him. I think his simple point was that they're looking at all options for the MM segment--he mentioned building it into something else, spinning it off, merging it with another company, and liquidating it. The market seems to be upset the MM didn't do well this quarter, but I've always valued it at its capital and that's it. Any profits are gravy as far as I'm concerned.

[kab60]

While it doesn't look good optically with excess cash lying around I like it that way. It reduces  the risk of a blowup. Market maker equity is only around 12% of the marketcap, so in the grand scheme of things I don't think it really matters (I'm also not valuing it om an EV basis since I don't think the liquidity can really be considered excess). Not sure what to think about converting MM into something different, but I thought he sounded pragmatic about it which I like. I can't judge the probabilities of it working out, but hopefully I can somewhat judge the character and his incentives to maximize long term value. Couple with the whitelabel potential it might be another option? I mean, MM has existed since the seventies, doesn't it make sense that they can somehow utilize all the knowledge etc. they've accumulated? (And I admit again, I'm not even sure exactly what they're considering).

[frommi]

While it doesn't look good optically with excess cash lying around I like it that way. It reduces  the risk of a blowup.

 

As a client i agree and want to see more cash on the balance sheet.

As a shareholder i am still very unsure if this kind of capital allocation actually destroys a lot of shareholder value. When i look at other compounders capital allocation was always the most important part. Additionally i think that in the next big crisis when margin balances go down, earnings will take a big hit. (nearly 50% of normalized broker pretax earnings is interest income?)

[KCLarkin]

Additionally i think that in the next big crisis when margin balances go down, earnings will take a big hit. (nearly 50% of normalized broker pretax earnings is interest income?)

 

Have you looked at historical correlations between margin balances and earnings?

 

Interest income is margin balances, securities lending, NIM on customer cash, interest on equity. In a crisis, margin might go down but shorting goes up, cash balances go up, trading volume goes up, MM volatilitiy goes up. To some extent, IBKR is self-hedged. It's also diversified geographically. Add in the growth trendline. It is not clear to me that earnings go down in a crisis.

 

IBKR will have volatile earnings and we just need to muddle along.

 

 

[frommi]

Additionally i think that in the next big crisis when margin balances go down, earnings will take a big hit. (nearly 50% of normalized broker pretax earnings is interest income?)

 

Have you looked at historical correlations between margin balances and earnings?

 

Interest income is margin balances, securities lending, NIM on customer cash, interest on equity. In a crisis, margin might go down but shorting goes up, cash balances go up, trading volume goes up, MM volatilitiy goes up. To some extent, IBKR is self-hedged. It's also diversified geographically. Add in the growth trendline. It is not clear to me that earnings go down in a crisis.

 

IBKR will have volatile earnings and we just need to muddle along.

 

When i look at 2008/2009 pretax brokerage numbers you may be right. But i wouldn`t bet on MM earnings going forward.

[kab60]

While it doesn't look good optically with excess cash lying around I like it that way. It reduces  the risk of a blowup.

 

As a client i agree and want to see more cash on the balance sheet.

As a shareholder i am still very unsure if this kind of capital allocation actually destroys a lot of shareholder value. When i look at other compounders capital allocation was always the most important part. Additionally i think that in the next big crisis when margin balances go down, earnings will take a big hit. (nearly 50% of normalized broker pretax earnings is interest income?)

It's not exactly opportunistic M&A but keeping cash to support growth is capital allocation (they've also done a speciale divy). I also prefer 1y treasury bonds to usual capex.  ROE isn't too shabby though it fluctuates like the results. I do however share your concern re capital allocation options since it's not clear how they can take advantage of a good crisis (no M&A, limited float for buybacks)

[cmlber]

You cannot recalculate the 12.4% from our income statement because net income attributable to common shareholders for 2013 was 12.4% of IBG LLC’s net income. However, you’re looking at a consolidated income statement which includes IBG LLC in addition to IBG, Inc.

 

Thanks. I will try to clarify with IR. It is important to know whether these corporate level expenses are variable (e.g. taxes) or fixed (public company expenses).

 

 

Did anyone ever figure this out?  Looking through the 10Ks going back to the IPO, it seems like these "corporate" expenses are erratic. 

 

In 2008 when reported net income was $1.1b the gap between actual % of net income attributable to common and the % ownership stake in IBG LLC is much lower than any other year (8.3% vs 10%), which would imply that a good part of this is fixed costs associated with being public not just higher taxes.  But then you look at 2010 and out of $277m in net income, -$9.7m is attributable to common shareholders, which is bizarre and implies the combo of fixed public expenses and higher taxes doubled from 2008 to 2010 despite net income declining by 75%.  But then you look at 2014 and 2015, and the net income was roughly the same in both years ($65m vs $64m) but the gap between actual % of NI attributable to common and % ownership in IBG LLC narrowed by a good amount in 2015 (11.8% vs 15.7% in 2015 i.e. 25% discount to ownership in IBG LLC, 9.7% vs 14.5% in 2014 i.e. 33% discount to ownership in IBG LLC). 

 

Very confusing and seems to be material. 

[KCLarkin]

Did anyone ever figure this out?  Looking through the 10Ks going back to the IPO, it seems like these "corporate" expenses are erratic. 

 

IR offered to clarify over the phone but I failed to follow-up.

[cmlber]

Did anyone ever figure this out?  Looking through the 10Ks going back to the IPO, it seems like these "corporate" expenses are erratic. 

 

IR offered to clarify over the phone but I failed to follow-up.

 

I clarified with IR and it seems to be all tax related.  The reason for the discrepancy is basically that the 84% owned by insiders is not subject to corporate tax but gets taxed on a flow-through basis on their personal returns.  So "Net Income of NCI" is basically untaxed even though it's in the "Net Income" line whereas "Net Income of Common Shareholders" is fully taxed.  So the proportion will be off.  Working from EBT it looks like the tax rate for public investors has been around 32%, 39%, 39% the past few years.

[KCLarkin]

Working from EBT it looks like the tax rate for public investors has been around 32%, 39%, 39% the past few years.

 

Thanks. Your implied rates seem close to the company's reconciliation in Footnote 12 (~38%).

 

 

[kab60]

Just three minor updates post Q3; Pound flashcrash didn't hit them. It seems like they'll sell market maker (no idea on value/price). 0,25 % lift in rates should add 52m to earnings.

 

[Liberty]

Selling the market maker could be a nice catalyst, if only because it removes a lot of noise from the results and removes a distraction for management. Not sure what they'd do with the capital. Special dividend maybe? Or just hold on to it because Peterffy likes to be overcapitalized.

[kab60]

I was actually hoping they could turn it into a HFT and spin it off to investors -  a sort of option. But I think it makes sense just to sell it and keep focusing on brokerage. Anyway, don't expect a special dividend. He wants to retain the equity. Seems like he's a bit annoyed that they have some what of a hard time luring big accounts from prime brokers that are part of big banks and thus TBTF.

 

[Liberty]

I was actually hoping they could turn it into a HFT and spin it off to investors -  a sort of option. But I think it makes sense just to sell it and keep focusing on brokerage. Anyway, don't expect a special dividend. He wants to retain the equity. Seems like he's a bit annoyed that they have some what of a hard time luring big accounts from prime brokers that are part of big banks and thus TBTF.

 

If they were able to be competitive that might've been a good idea, but declining results at the MM over time, as well as their comments on it, seem to show that they are being outgunned and that this isn't a business with a lot of runway for them.

[merkhet]

Selling the market maker could be a nice catalyst, if only because it removes a lot of noise from the results and removes a distraction for management. Not sure what they'd do with the capital. Special dividend maybe? Or just hold on to it because Peterffy likes to be overcapitalized.

 

IIRC, they said on the conference call that they were keeping the capital in the company.

[Liberty]

Selling the market maker could be a nice catalyst, if only because it removes a lot of noise from the results and removes a distraction for management. Not sure what they'd do with the capital. Special dividend maybe? Or just hold on to it because Peterffy likes to be overcapitalized.

 

IIRC, they said on the conference call that they were keeping the capital in the company.

 

Ok. I haven't been following as closely lately.

 

I know that they were taking out 10% of the MM equity every year and either having it pay for its growth or run-off over time.

[austin37]

TD Ameritrade to Buy Scottrade in $4 Billion Deal

 

http://www.nytimes.com/2016/10/25/business/dealbook/td-ameritrade-scottrade-acquisition.html?smid=re-share&_r=0

 

• TD Ameritrade announced on Monday that it would acquire Scottrade Financial Services, a rival discount brokerage, for $4 billion, in a bid for scale at a time when small investors are losing their taste for stock trading.
  
• TD Ameritrade, for example, said on Monday that its average client trades per day declined seven percent in the three months through September.
   
  

 

http://www.businesswire.com/news/home/20161024005562/en/TD-Ameritrade-Acquire-Scottrade

 

• Scottrade has built a strong reputation for outstanding client service. This year clients ranked the brokerage “Highest in Investor Satisfaction with Self-Directed Services” in the J.D. Power 2016 U.S. Self-Directed Investor Satisfaction StudySM.5 With a network of nearly 500 branches employing more than 1,000 investment consultants, the transaction will significantly expand TD Ameritrade’s distribution channels and further accelerate its asset gathering capabilities.
  

 

Seems like a transaction from a point of weakness, on balance looks to be a positive for IBKR.

[BG2008]

Has anyone used IB's trade desk services for block trading etc?  Would love feedback on execution, pricing,