Asiff Hirji had no sooner begun working for Ameritrade Holding Corp. last fall than the firm shot past Charles Schwab Corp. to become the biggest online brokerage in terms of the number of daily equity trades.
The timing was coincidental, to be sure. Ameritrade (now handling about 125,000 trades a day) overtook Schwab (120,000) on the strength of its $1.3 billion acquisition in September of Datek Online Holdings, which increased its trading activity by more than 50 percent. Hirji, then a Bain & Co. consultant, could scarcely take credit for that.
But on assignment from Bain, Hirji managed the integration of the two e-brokerages. By the time Ameritrade declared in April that it had achieved its promised $100 million in annualized postmerger savings, Hirji had clearly earned his keep. That same month -- no coincidence this time -- he left Bain to become the Omaha, Nebraskabased brokerage's chief information officer, filling a vacant position under CEO Joseph Moglia.
Hirji's seven months as a vice president at Bain's New York office, focusing mainly on the Ameritrade project, were no cakewalk. Datek added about a million accounts to Ameritrade's 2 million, a significant technology challenge on its face. Both firms had sophisticated, highly efficient back offices but distinct cultures and customer bases -- Datek primarily served active traders, while Ameritrade appealed to more cautious mainstream investors.
"Nobody thought that Ameritrade was going to buy Datek, and when it did a lot of people thought Ameritrade wouldn't be able to handle it," notes Hirji, 36.
His efforts have helped to quiet skeptics like Joseph Vinciquerra, an Atlanta-based analyst who follows Ameritrade for Raymond James & Associates. Long wary about online-only Ameritrade's survivability against the larger bricks-and-clicks like Schwab and against traditional banks and brokerages, Vinciquerra is now convinced that the company has the technology and cost structure to weather hard times. He estimates that Ameritrade would make money even if daily transactions fell as low as 50,000. His upgrade of Ameritrade to strong buy on May 5 helped spark a 15 percent boost in the firm's stock price, to $6.51. On May 16 it hit a new 52-week high of $7.80.
Ameritrade depends on technology to keep growing while keeping a lid on overhead. Since Moglia, a former Merrill Lynch & Co. private banking executive, took over from Ameritrade founder J. Joe Ricketts as CEO in March 2001, he has pared the workforce from 3,200 to below 2,000 despite the acquisitions of Datek and, in 2001, National Discount Brokers Corp. Ameritrade has made money for eight straight quarters; it earned $9.6 million, or 2 cents a share, in its second fiscal quarter, ended March 28.
More merger-related integration projects may be in the offing. In April Ameritrade agreed to buy Mydiscountbroker.com from Dallas-based SWS Group for up to $5 million. Mydiscountbroker's 20,000 accounts will be easy to digest. But Ameritrade, with a market capitalization of $3.2 billion, is also likely to bid for the 3.3 million customers of TD Waterhouse Group, which Canada's TD Bank Financial Group is shopping around.
Born in Tanzania and raised in Calgary, Canada, Hirji earned an MBA from the University of Western Ontario and was a founding partner of Mitchell Madison Group, a financial services consulting firm. From 1999 to 2001 he served as president and chief technology officer of online investment advisory service Netfolio. After leaving Netfolio and before joining Bain in 2002, he was president of Meralix, which managed turnarounds of troubled companies owned by private equity funds.
Hirji discussed Ameritrade's technology strategy in a recent interview with Institutional Investor Assistant Managing Editor Jeffrey Kutler.
Institutional Investor: How well did you know Ameritrade before becoming CIO?
Hirji: I first came in contact with the former management team in 1999, when they were looking to buy Netfolio, the investment management system that I helped create. It wasn't until last September, when I was the lead Bain & Co. partner on the merger integration, that I began working closely with the management teams of both the Datek and Ameritrade organizations as they noodled through how to knit their technologies together. There were successful technology infrastructures and excellent product development teams at both companies.
Was their technology leadership what attracted you to the job?
The quality of the infrastructure and development team obviously played a part in my decision, but there were more important factors. First, the role -- the challenge -- is more about creating a single culture and sense of purpose out of two very strong companies. Second, the management team at Ameritrade is really good. Third, the company is extremely well positioned in a marketplace that has a lot of potential.
What's left to be done in integrating the two companies?
The bulk of it is done. It included something that, to the best of my knowledge, no one else has been able to do: We decoupled the Datek clearing environment from the Datek front end and plugged it into the Ameritrade clearing environment. We relatively smoothly moved close to a million accounts, millions of transactions and tens of millions of assets over a single weekend in March. I'm very proud that this team was able to do that while going through this integration, while going through layoffs, the kinds of things that often cause companies to lose focus.
Did you have to cut much of the technology staff?
We don't reveal the numbers, but we had our fair share of cuts. Each company coming in had a call center, a clearing function, a technology function, a marketing function. All those areas had reductions. Bear in mind, most mergers don't work. In most mergers the acquired company keeps about 10 percent of its staff. That's not what happened here. This merger retained many more people from the acquired company than would be normal. We now have a development center in Jersey City, which is the legacy Datek center, on top of those in Omaha and Baltimore that we had with Ameritrade. That added a level of complexity, but they had some really talented people in Jersey City, and we wanted to keep them.
Do you view technology as a means to a competitive advantage?
Yes, but not for the reasons most people will tell you. They will usually say that a specific technology -- XYZ server or XYZ operating system -- provides an advantage. I don't believe that. If it does, it's fleeting. The advantage is in people -- in having the best technology organization that we can build and in being able to deploy technology effectively.
Does Ameritrade's profitability imply that more dollars will be invested in technology?
Indirectly, yes. In contrast to most financial businesses, for us technology is the product. Not to invest in technology -- and in the quality of service we deliver through call centers and so forth -- means not to invest in the core product. If our results had been worse, would we have cut back on our investment? Probably not. We would have cut back in other areas. If the results had been more positive than we'd anticipated, then we'd have been more likely to invest in other areas for growth. The core technology budget is reasonably stable over time. My challenge is to get as much of that budget pie as possible focused on new products and services, as opposed to maintenance of current features and functionality.
Is the technology investment rising?
Yes. But the expectation is that we'll be able to do a lot more with those dollars than we did in the past.
Are you affected, like other firms, by the need to get a quicker return on technology investments?
Everybody talks about ROI, but I'm not sure they calculate it right. We do a classical ROI analysis, but it's also important to understand short-term expectations to guide the rollout. So we start by looking at how badly a business wants to do something, compared to what we think the results will be in the first few months of having done it. It's not that we won't do it if the early return isn't good enough. We want to be able to track the initial performance and make changes if necessary.
So you're not in the austerity mode that prevails elsewhere in financial services?
We're in a different place. Believe it or not, this market is an opportunity for us to grow and put more distance between us and our competitors. One of our ambitions is to make Ameritrade stronger during this period when everybody else is just hanging on.
