Ameritrade's Joseph Moglia Is One Tough Trader

How Ameritrade, moribund a year ago, sprang back to health

Why is Ameritrade Holding Corp. Chief Executive Joseph H. Moglia so peppy? There couldn't be a worse time to be an online stockbroker. Do-it-yourself investors who made Web trading a national sport are hibernating. Online trading this year through October is down 35% from the same period of 2001. And Ameritrade lost a net $29 million in its fiscal year ended Sept. 27 on an 11% drop in revenues.

Yet Moglia, 53, is undeterred. In September, he completed Ameritrade's $1.3 billion, all-stock purchase of Datek Online Holdings Corp., the leading venue for day traders, boosting Ameritrade's accounts by 80,000, to 3 million. On Oct. 22, he launched a $115 million ad campaign to win back investors. "Now that we've established ourselves as the largest online broker, you are just beginning to see our potential," he boasts.

Ameritrade may be big online, but it's still a small fry in the securities world. That's why the smart money isn't betting on a solo future for Ameritrade long-term. Plenty of signs point to a sale when markets turn up. First, the Datek deal cut the holdings of the company's reclusive founder and chairman, J. Joe Ricketts, to 28% from 55%. It also gave board seats and 30% of the stock to three private equity firms: Bain Capital, TA Associates, and Silver Lake Partners, which eventually will sell to return profits to their investors. The change pleases other shareholders. "It was always a concern with Ricketts' control, whether he would be willing to sell," says one portfolio manager, who owns the shares.

Even Ricketts, 61, now seems game. Semi-retired, he mostly raises bison on his ranch in Jackson Hole, Wyo., and rides a motorbike around the country with friends. Still, he denies a sale is imminent. "There isn't any question in my mind that selling out today will be the wrong thing for shareholders," Ricketts insists in a rare interview at the company headquarters in Omaha.

Analysts say Ameritrade would make a good catch for American Express (AXP ), American International Group (AIG ), or Bank of America (BAC ). And its singular focus on online trading--in contrast to rival E*Trade Group Inc. (ET ), which embraced other financial services--could whet a potential acquirer's interest. "The company has very little baggage," says Morningstar analyst Rachel Barnard.

Thanks to Moglia, Ameritrade now looks as if it can survive and even make money until a buyer comes knocking. A year ago, the company was given up for dead after losing $91 million. Moglia, hired from Merrill Lynch & Co. (MER ) in March, 2001, slashed expenses by 13%. He cut bank debt to zero from $17 million and convertible debt by 75%, to $48 million. In July, 2001, before persuading Datek to sell, Moglia snapped up National Discount Brokers Corp. from Deutsche Bank. Customer assets now total $34 billion, vs. $26 billion a year ago. So Ameritrade's pain threshold is now pretty high, the CEO says: If the average number of daily trades falls 65%, to 50,000, from 140,000 today, it could still break even. Analysts expect net profits in 2003, the first time since 1999.

The owners are in no hurry to sell, with Ameritrade's stock mired at $4.50, down around 30% for the year. Says C. Kevin Landry, CEO of TA Associates and an Ameritrade board member: "We want to participate in the upside."

That upside isn't guaranteed. It may take at least a year to integrate Datek. Datek customers, who shunned Ameritrade in the past, could jump. E*Trade, which offers banking and mortgages too, could also take business. Moglia argues that Ameritrade's superior technology and customer service will win out. The evidence? Ameritrade's 46% growth in accounts in the past two years (pre-Datek), vs. 21% for E*Trade and 8% for TD Waterhouse Group Inc. Also, he argues, Ameritrade customers trade 14 times a year on average, vs. 8 for the rest of the industry.

Moglia has surprised a pessimistic Wall Street several times. When he bought Datek, the skinny was that Ameritrade would go on the block fast. That hasn't happened yet, but it may be just a matter of time--and timing.

By Pallavi Gogoi in Omaha

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