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Ameritrade Reorganizes

Omaha, Neb.-based Ameritrade Holding Corp., its bottom line suffering from a rapid decline in online trading thanks to the bear market for tech stocks, today reorganized the company to serve two diverse client groups.

The company established a private client unit to deal with individual customers, including its traditional online small investor, and an institutional client group to serve large customers such as banks and hedge funds.

Calling it the largest reorganization in its 26-year history, the company added the positions of Chief Strategy Officer and Chief Administrative Officer.

"Through this reorganization, we will maximize our existing assets by deploying every Ameritrade employee to either directly serve clients or directly support someone who does..." said Joe Moglia, Ameritrade's CEO.

Moglia will oversee a newly created executive management team consisting of Pete Ricketts and Vince Passione, who will head the private client and institutional client divisions, respectively; Chief Financial Officer Randy MacDonald; Chief Strategy Officer Phylis Esposito; Chief Administrative Officer Kurt Halvorson; General Counsel Ellen Koplow; and Co-Chief Information Officers Mok Choe and Raymond Dury. Moglia will continue to report to Founder and Chairman Joe Ricketts.

A single Ameritrade Technology Group will be leveraged across both divisions, aimed at capturing synergies in product development for clients of each business unit. The company said it also plans to offer new, tiered levels of products and services aimed at its various types of discount brokerage customer, from long-term investors to day-traders.

The institutional client division will target seven institutional client segments, banks and credit unions on a co-branded basis; broker/dealer, hedge fund and money management clients; employee benefit programs featuring Ameritrade offers and services; retirement services; international services; services for independent registered investment advisors; and clearing services for broker/dealers as well as the investment advisory and banking industries.

Moglia said in a conference call that financial services is a cyclical business that has faced adverse conditions for more than a year. "This is a big step for our company," he said. "We've got a lot of work ahead of us but this reorganization is an opportunity to unlock the value" in the brand.

Apparently Ameritrade's widely reported attempt to be acquired by Canadian Imperial Bank of Commerce (CIBC) has fallen through, and the company is proceeding with a renewed effort to restore profitability.

And it certainly is not the only online brokerage that is being forced to scramble. At least one recent article on financial site Fool.com was headlined: "Is Online Trading Dead?"

Ameritrade no doubt would answer that by saying no, but it's clear the landscape has changed. Even the leading online brokerage, Charles Schwab turned in another disappointing monthly report for May, when it saw average daily trading volume drop 11 percent from last May and 7 percent from April.

Last March Ameritrade named a new CEO, Moglia, who had been a senior vice president in Merrill Lynch & Co. Inc.'s private client group.

And just last week the company named a new chief strategy officer and wasn't shy about saying that the move was part of a restructuring plan meant to improve results. Phylis Esposito, an outside management consultant, will be responsible for mergers and acquisitions, strategic alliances, business development and investor relations, the company said, adding that it is proceeding with its client-focused restructuring.

The company has been struggling financially for several quarters. For the 26 weeks ended March 30, revenues fell 13 percent to $282.3 million. Net loss totaled $77.2 million, or 30 cents a share, up from $18.5 million.

The company's stock closed at $6.37 on Tuesday, well down from its 52-week high of $21.50. The 52-week low is $3.75.

In a May 14 10-Q filing with the Securities and Exchange Commission, Ameritrade said that its second 2001 fiscal quarter was adversely affected "by a decline in commissions and clearing fees of 39 percent to $76.4 million from $126 million in the same period a year earlier."

The decline was primarily attributable to a decrease in the number of securities transactions processed, as average trades per day decreased 24 percent to 113,000 in the second quarter of fiscal 2001 from 149,000 a year earlier.

Clients averaged approximately five trades per account during the second quarter of fiscal 2001, compared to more than 11 trades per account during the second quarter of fiscal 2000.

At the time, the company said in the report that it anticipates "that our available cash resources and credit facilities will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months."

The company said in its report that it has a revolving credit agreement with a bank group that permits borrowings up to $60 million through December 31, 2001.

Analysts polled by Thomson First Call are expecting the company to cuts its loss for the third quarter, with a current mean estimate of a loss of 1 cent a share for Ameritrade's next reporting period.