Oct. 27 (Bloomberg) -- TD Ameritrade Holding Corp., the third-largest retail brokerage by client assets, said earnings fell 8.9 percent as lower interest rates curbed gains from more trading.

Profit for the fiscal fourth quarter decreased to $156.7 million, or 26 cents a share, from $172 million, or 29 cents, a year earlier, the Omaha, Nebraska-based company said in a statement today. Earnings beat the 24-cent average analyst estimate, according to data compiled by Bloomberg. TD Ameritrade also forecast 2010 profit of $1.10 to $1.40 a share, compared with the average projection of $1.30.

TD Ameritrade waived $25 million in fees on some money- market funds this quarter and last, after the Federal Reserve slashed its benchmark interest rate to near zero in December. That offset revenue gains from an increase in trading, spurred by the biggest rally in U.S. stocks since the 1930s. Chief Executive Officer Fred Tomczyk is trying to boost commissions with the $748.6 million purchase of options brokerage Thinkorswim Group Inc. following four consecutive quarters of declining profit.

“Their earnings are down year over year, even though their assets are up, even though their trading volume is up, and they’ve held costs under control,” said Patrick O’Shaughnessy, a Chicago-based analyst at Raymond James & Associates. “The big reason is because interest rates have fallen so much.”

8 Buys, 11 Holds

O’Shaughnessy rates the shares “strong buy.” TD Ameritrade has 8 buy ratings among analysts, 11 holds and 1 sell, according to data compiled by Bloomberg.

Sales at TD Ameritrade rose 1.3 percent to $657.9 million during the fiscal fourth quarter. Revenue from commissions and transaction fees climbed 37 percent, while revenue from client assets sank 29 percent because of lower rates. Average client trades jumped 35 percent to 411,000 a day.

“We are one of the few companies in any industry that can say that we had a very strong organic growth,” Chief Financial Officer Bill Gerber said in a phone interview. “That really sets up the future for us.”

Gerber said the company is “cautiously optimistic” it will maintain similar trading levels this quarter. He projected that a 0.25 percent point increase in the Fed’s benchmark interest rate would increase TD Ameritrade’s earnings by 7 cents a share annually.

‘Extended Period’

The Fed reiterated its pledge last month to keep its target for the overnight lending rate between banks at around zero “for an extended period” to boost a weak recovery that has yet to create jobs.

TD Ameritrade bought back more than $450 million of its own stock during the period, paying an average of $11.94 each, according to today’s statement. Tomczyk said on Sept. 15 that the company was considering a buyback or a dividend.

“We haven’t decided yet to pay a dividend,” Gerber said in the interview. “At some point in time we may get to that position.”

Gerber said the company is looking for acquisition targets.

TD Ameritrade shares fell 1.1 percent to $19.27, paring an earlier decline of as much as 4.4 percent. The shares had risen 37 percent this year through yesterday in Nasdaq Stock Market trading. That compares with a 51 percent increase by the NYSE Arca Securities Broker/Dealer Index, which tracks the shares of 11 companies including TD Ameritrade.

Toronto-Dominion Bank, the largest investor in TD Ameritrade, said today that TD Ameritrade’s profit will add C$59 million ($55.4 million) to its fiscal fourth-quarter earnings.

Charles Schwab Corp., the largest independent U.S. brokerage by client assets, reported a 34 percent drop in third- quarter profit on Oct. 15 as the decline in rates cut yields on bonds it owns and client trading “slowed modestly.”

E*Trade Financial Corp., the online broker that’s scheduled to report results after U.S. markets close today, will post its ninth straight quarterly loss, according to the average analyst projection in a Bloomberg survey.

To contact the reporters on this story: Mary Childs in New York at mchilds4@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.

Last Updated: October 27, 2009 16:49 EDT