Interactive Brokers Group, Inc. (NASDAQ:IBKR) Q4 2016 Earnings Conference Call Transcript

Jan 17, 2017 • 04:30 pm ET


Interactive Brokers Group, Inc. (NASDAQ:IBKR) Q4 2016 Earnings Conference Call Transcript


Loading Event

Loading Transcript


Good day, ladies and gentlemen. And welcome to the Interactive Brokers Group Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded.

I would now like to hand the floor over to Nancy Stuebe, Director of Investor Relations. Please go ahead.

Nancy Stuebe

Thank you, operator. And welcome, everyone, to our fourth quarter earnings call. Our earnings were released today after the market closed and are also available on our website. Our speakers today are Thomas Peterffy, our Chairman and CEO; and Paul Brody, our Group CFO.

We will start the call with some prepared remarks about the quarter and then we will take your questions.

(Forward-Looking Cautionary Statements)

And now, I'd like to turn the call over to Thomas Peterffy.

Thomas Peterffy

Thank you for joining us for our final 2016 earnings conference. We finished the year with some surprises in the otherwise usually seasonally subdued holiday quarter. The results of the election surprised many investors, and people who read the New York Times and did not watch my interview on CNBC on October 3 may have mistaken its likely impact on the markets. Kidding aside, the night and days following the election brought some welcome trading volume to the markets in an otherwise lackluster quarter. Our pretax income for the quarter was $28 million and for the full year $761 million. Correcting for the unfavorable currency fluctuations, these would have been $181 million for the quarter and $801 million for the full year.

2016 was an unusually slow year for the markets. Aside of a few days of sudden spurts of activity following the BREXIT and the US general election votes, there was very little activity in the markets and volatility was at historic lows. Indeed, our commission revenue declined from $617 million in 2015 to $612 million in 2016. This in spite of the number of accounts having increased by 16% to 385,000 and our customer assets increased by 27% to $85.5 billion.

Continuing with the trend of the previous years, Market Making pretax income diminished to $44 million from the previous year's $130 million, while brokerage has increased 41% from $536 million to $756 million, although the 2015 number was diminished by $140 million differentially greater bad debt expense due to the Swiss franc debacle. Without that, pretax profits from brokerage would have increased by 12%. As I said earlier, commission income decreased for the year, so that this overall income increase is mostly due to $98 million increase in interest income.

As previously indicated, this week we are introducing the so-called High Beta Portfolios, to be managed by our COVESTOR subsidiary. These are unique products, in that they combine the advantages of actively-managed mutual funds' stock selection techniques that we have automated, with the low cost of passively-managed ETFs. There will be five different portfolios: broad-based equity, value, growth, quality and high