Author Topic: IBKR - Interactive Brokers  (Read 164266 times)

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #260 on: July 21, 2016, 10:57:52 AM »
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

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Re: IBKR - Interactive Brokers
« Reply #261 on: July 21, 2016, 11:41:08 AM »
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

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Re: IBKR - Interactive Brokers
« Reply #262 on: July 21, 2016, 10:47:21 PM »
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

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Re: IBKR - Interactive Brokers
« Reply #263 on: August 20, 2016, 02:56:09 PM »
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

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Re: IBKR - Interactive Brokers
« Reply #264 on: August 21, 2016, 12:24:03 PM »
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

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Re: IBKR - Interactive Brokers
« Reply #265 on: August 23, 2016, 10:58:42 AM »
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

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Re: IBKR - Interactive Brokers
« Reply #266 on: August 23, 2016, 11:54:17 AM »
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

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Re: IBKR - Interactive Brokers
« Reply #267 on: October 20, 2016, 05:17:17 AM »
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

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Re: IBKR - Interactive Brokers
« Reply #268 on: October 20, 2016, 05:28:53 AM »
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.
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kab60

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Re: IBKR - Interactive Brokers
« Reply #269 on: October 20, 2016, 06:08:23 AM »
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.