IB income before taxes increased 52%

Discussion in 'Retail Brokers' started by Doji7, Nov 16, 2008.

  1. Doji7

    Doji7

    http://biz.yahoo.com/e/081110/ibkr10-q.html

    THIRD QUARTER RESULTS

    Executive Overview

    Third quarter results: Diluted earnings per share were $0.65 for the three months ended September 30, 2008, 23% higher than the same period last year. The calculation of diluted earnings per share is detailed in Note 4, "Initial Public Offering and Recapitalization," to the unaudited condensed consolidated financial statements, Part 1, Item 1 of this Quarterly Report on Form 10-Q. IBG, Inc.'s diluted earnings per share were $0.53 for the three months ended September 30, 2007.

    Our income before income taxes and minority interest increased 52%, to $1,249 million, during the past 12 months versus the prior 12 month period.

    Consolidated: For the three months ended September 30, 2008, our net revenues were $497.0 million and income before income taxes and minority interest was $347.4 million, compared to net revenues of $445.1 million and income before income taxes and minority interest of $307.9million for the same period in 2007. Trading gains were 25% higher in the third quarter of 2008 compared to the same period last year and commissions and execution fees were up by 41% for the same time period. Our pre-tax margin, for the three months ended September 30, 2008, was 70%, compared to 69% for the same period in 2007.

    Market Making: During the three months ended September 30, 2008, income before income taxes in our market making segment increased 16%, compared with the three months ended September 30, 2007, and 40% sequentially. The year over year increase is consistent with the continued growth of our global market making business. The substantial sequential increase from the second quarter was due to an exceptional market environment with high volumes and volatility, which allowed us to leverage our automated trading and real-time risk management system and reflected positively in our results. Pre-tax margin was 79% for the quarter ended September 30, 2008, highlighting leverage from automation.

    Market making options and futures contract volumes increased 10% and 47%, respectively, for the three months ended September 30, 2008 from the same period last year. Trade volume was 8% lower for the three months ended September 30, 2008, from the same period last year, which reflected a lower level of stock trading. We recently discontinued a stock trading strategy that has been marginal for some time.

    Brokerage: During the three months ended September 30, 2008, income before income taxes in our electronic brokerage segment increased 13%, compared with the third quarter of 2007, primarily reflecting higher revenues from commissions and execution fees. Pre-tax margin decreased to 47% for the quarter ended September 30, 2008, compared with 50% for the same period last year, reflecting:
    (1) lower net interest driven by market conditions, (2) lower other income from decreased payment for order flow programs on US options exchanges, (3) increased employee compensation and occupancy expenses, primarily from an acquisition that is being integrated and (4) $2.5 million in bad debt expense resulting from extreme market conditions.

    Commissions and execution fees increased 41% due to robust growth in transaction volume and customer accounts. Total daily average revenue trades ("DARTs") for cleared and execution-only customers increased 40% to 377,000 during the three months ended September 30, 2008, compared to 270,000 during the three months ended September 30, 2007. Cleared customer DARTs increased by 48%, to 338,000, over the same period. The number of customer accounts increased 19% over the year ago quarter and customer equity grew by 13% over the year ago quarter.

    Annualized DARTs per average account were 814 in the third quarter of 2008 and annualized net revenue per average account was $4,483, up 25% and 3%, respectively, over the same quarter last year.

    Nine months results: IBG, Inc.'s diluted earnings per share increased 60% year to date compared to the same period last year, to $1.76 for the nine months ended September 30, 2008 from $1.10, on a pro forma basis, for the same period in 2007.

    Consolidated: For the nine months ended September 30, 2008, our net revenues were $1,420.8 million and income before income taxes and minority interest was $980.7 million, compared to net revenues of $1,070.7 million and income before income taxes and minority interest of $662.9 million for the same period in 2007. Income before income taxes was 48% higher in the nine months ended September 30, 2008 compared to the same period last year; trading gains were 58% higher



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    and commissions and execution fees were up by 46% for the same time period. Our pre-tax margin, for the nine months ended September 30, 2008, was 69%, compared to 62% for the same period in 2007.

    Market Making: During the nine months ended September 30, 2008, income before income taxes in our market making segment increased 56%, compared with the nine months ended September 30, 2007, primarily reflecting higher trading gains. Pre-tax margin increased to 78% for the nine months ended September 30, 2008. The nine months ended September 30, 2008, and in particular the first and third quarters, were marked by a productive environment for market making, with high market volumes and high volatility. These conditions allowed us to leverage our automated trading and real-time risk management system. While market making trade volume for the nine months ended September 30, 2008 was down 3% compared to the same period last year, options and futures contract volume rose 20% and 49%, respectively.

    Brokerage: During the nine months ended September 30, 2008, income before income taxes in our electronic brokerage segment increased 33%, compared with the same period in 2007, reflecting higher revenues from commissions and execution fees. Pre-tax margin increased to 47% for the nine months ended September 30, 2008, compared with 44% for the same period last year, reflecting leverage from automation and decreased payments to broker-dealer customers for order flow. The increase in commissions and execution fees was related to robust growth in transaction volume and customer accounts. DARTs for cleared and execution-only customers increased 41% to 352,000 during the nine months ended September 30, 2008, compared to 250,000 during the nine months ended September 30, 2007. Cleared customer DARTs increased over the same period by 53% to 309,000. The increase in net interest was driven by the growth in customer balances and fully-secured margin loans.

    Market making, by its nature, does not produce predictable earnings. Our results in any given period may be materially affected by volumes in the global financial markets, the level of competition and other factors. Electronic brokerage is more predictable, but it is dependent on customer activity, growth in customer accounts and assets, interest rates and other factors. For a further discussion of the factors that may affect our future operating results, please see the description of risk factors in our Annual Report on Form 10-K filed with the SEC on March 27, 2008.

    The following tables present historical trading volumes for our business. However, volumes are not the only drivers in our business.
     
  2. I trust IB's numbers about as much as I trust any financial firm these days which is about as far as I could throw them.
     
  3. Brokerage: "Pre-tax margin increased to 47% for the nine months ended September 30, 2008, compared with 44% for the same period last year"

    With a very healthy 47% pretax profit margin it is long past time that IB lowered their futures commissions to more competitive rates. It is easy to find futures brokers with lower commissions than IB.
     
  4. Arjun1

    Arjun1

    They could also:

    * improve customer service
    * fix the innumerable bugs in TWS
    * complete the platform integration with FutureTrade (which was supposed to happen months ago)

    I doubt they will do any of the above.
     
  5. Of course there are plenty of things that IB could do to be a better broker, but cutting futures commissions to more competitive levels would be better for their business long term and save their customers money now.