IBKR - Interactive Brokers

[KCLarkin]

Multiply that by 4 and you get $1.28 run - rate
Current price $37 / $1.28 = 29X.

What am I missing?

The market maker business is extremely volatile. I don't think your simple 4x calculation will work in practice (your run-rate will be very volatile). As a starting point, you should strip out the market maker, currency effects, and mark-to-market gains of the treasuries. Then maybe normalize "bad margin debt" expenses. Then add back some value for the market maker. This would give you a less volatile "run-rate".

[KCLarkin]

Anyone have any thoughts on the impacts of Brexit on IBKR?

Swiss Franc Debacle: Although there were wild swings last night, they weren't as dramatic as the Swiss Franc. I think it also unlikely that people were positioned heavily in anticipation of a REMAIN vote. The increased margin rates seem sufficient.

Interest rates: Not a major factor. The increase in the 2 year should result in mark-to-market losses, but probably lead to slightly lower NIM? IBKR is not as interest rate sensitive as Schwab.

Currency: GLOBALS currency basket will take a big hit.

Volatility: increased volatility should be good for market maker and commissions.

Altogether, I don't think these add up to a significant impact.

[Oreo]

I think those are great points, and outages on competing platforms could help incremental customer equity to IBKR.
During days like these, I try to remind myself why I am in IBKR in the first place (strategic take-out value).

[benhacker]

KC, they probably have some margin losses here, maybe $5-15m (guessing) from general whatever... but I think net effect is more trading and higher spreads / commissions / MM margins.

So slightly net positive for them mid term.  Just my feel.

[KCLarkin]

KC, they probably have some margin losses here, maybe $5-15m (guessing) from general whatever... but I think net effect is more trading and higher spreads / commissions / MM margins.

So slightly net positive for them mid term.  Just my feel.

It sounds like it was well-contained:
http://www.marketwatch.com/story/how-one-broker-weathered-the-brexit-storm-2016-06-24?mod=mw_share_twitter

[benhacker]

Yeah, that's good to hear.

A side item that may be big or not (not sure) is that I head Etrade, Ameritrade and Fido had slow down issues today.  No issues I'm aware of either on quote delays or website / TWS issues at IB, so maybe a marginal form of marketing for folks who care about this stuff.

My general view is +vol is +ve for IB.

[TwoCitiesCapital]

KC, they probably have some margin losses here, maybe $5-15m (guessing) from general whatever... but I think net effect is more trading and higher spreads / commissions / MM margins.

So slightly net positive for them mid term.  Just my feel.

Would you mind explaining how the loss from margin works? I'm envisioning that downward spiral of the markets left many people under their margin limits which would result in liquidations and forced sales. For heavily leveraged/highly volatile accounts, I can see how that might wipe out the equity value of the account and leave a deficiency that IBKR would carry as a liability, but is there no recourse to get that money back? No claims or courts or anything? That person just gets away without owing money to IBKR as long as they don't open another account with them?

[muscleman]

KC, they probably have some margin losses here, maybe $5-15m (guessing) from general whatever... but I think net effect is more trading and higher spreads / commissions / MM margins.

So slightly net positive for them mid term.  Just my feel.

Would you mind explaining how the loss from margin works? I'm envisioning that downward spiral of the markets left many people under their margin limits which would result in liquidations and forced sales. For heavily leveraged/highly volatile accounts, I can see how that might wipe out the equity value of the account and leave a deficiency that IBKR would carry as a liability, but is there no recourse to get that money back? No claims or courts or anything? That person just gets away without owing money to IBKR as long as they don't open another account with them?

IBKR has instant liquidation. They are the most brutal broker on margin calls. You will not be given a grace period to come up with extra money to keep your position.

So if you want to use their margin, go with portfolio margin and buy options to hedge your margin stock positions. Otherwise it will be extremely dangerous.

[muscleman]

I have taken some study on IBKR. I found that each year they have customer bad debts and currency fluctuations as one time gain/losses. Excluding those, the earnings have been flat, which customer accounts grow by 17-20% a year. Does anyone know why?

Another concern: Their class A share count grows by about 7% a year. That's quite a dilution.

[kab60]

I have taken some study on IBKR. I found that each year they have customer bad debts and currency fluctuations as one time gain/losses. Excluding those, the earnings have been flat, which customer accounts grow by 17-20% a year. Does anyone know why?

Another concern: Their class A share count grows by about 7% a year. That's quite a dilution.

Their marketmaker business has historically been their golden goose, but not so much today. Earnings from MM have plummeted in recent years, dragging down overall profitability and somewhat masking the growth from brokerage. That might be it?

I see total sharecount rising from 400m in 2007 to 408m in recent Q.