Once upon a time in America if one wanted to trade a stock or a bond, one had to do it through a stockbroker, who had the exclusive power to trade securities, and the exclusive information on the securities upon which such trades were made. Wall Street firms like Merrill Lynch and Dean Witter, with their legions of stockbrokers across the country, were paid handsomely for that exclusivity, taking a whopping percentage of the money that changed hands.
Then along came a revolution, started by a reserved and pious man, who believed his employees should wear blazers and red ties, be citizens in good standing in their communities as members of Elks and Kiwanis clubs and, for damn sure, be nice to people on the telephone. The man was John Joseph “Joe” Ricketts, born and raised in Nebraska City, Nebraska. His first job was as a stockbroker at a Dean Witter office in Omaha. In his five years there, he learned their playbook, in and out, and proceeded to use that knowledge to turn the industry on its head.
In 1975, with $38,000 from his business partners and another $12,000 borrowed from family and friends, Ricketts founded First Omaha Securities. Despite some serious misgivings on the part of its own founder, and some near-death experiences along the way, it would one day become the $10 billion company known as TD Ameritrade.
What Ricketts had figured out was that by using technology, there was a way to deprive Wall Street of its exclusivity—and thereby make a ton of money. In 1988, just before another disruptor named Charles Schwab would effectively do the same thing on the West Coast, Ricketts introduced automated securities trading via touch-tone telephones, knocking out the high-priced Wall Street middleman. For a fee of a mere three cents per transaction, anyone could now do a stock trade without handing over a good percentage of the money to a stockbroker. (Ricketts’s clients pressed “1” to sell and “2” to buy.)
What individual investors still lacked was the ability to access vital information on stocks and bonds—historical data, earnings forecasts, and market color. The Wall Street banks maintained a tight grip on that information. It was the last advantage they had.
Until the Internet came along. Ricketts saw the electronic wave coming. In 1995 he bought a stock-and-bond trading website called WealthWeb. The next year, he changed the name of his company to Ameritrade and began offering low-cost trades and online research tools. The power of investing had shifted away from Wall Street and to the individual. The boom in discount online trading was on.
Charles Schwab, E-Trade, Fidelity, Waterhouse, and hundreds of smaller firms joined Ameritrade in the frenzy. E-Trade went public in 1996. Ameritrade followed suit in 1997. “We were all going like crazy,” says Frank Petrilli, then the chief executive of what would become known as TD Waterhouse. “Customers were coming in droves, the market was rocking, the parties were fun. And everyone—I mean everyone—was making money.”
To get an idea of just how fast the industry was growing, consider this: It took Ameritrade twenty-five years to reach half a million customers. It took just one year (2000) to triple that number. The polite, family-owned company in sleepy Omaha—well off Wall Street’s Manhattan grid—had become its own power source.
But the online discount brokerage industry would quickly prove that it was not immune to the excesses and follies of the financial industry that it was disrupting.
By the late 1990s the Internet and technology boom was at full roar. Online brokerages became hot stocks and irresistible investments for venture capital firms. The stock market had become a leading topic of conversation in American households and in the media. Suddenly it was perfectly socially acceptable to mention your stock portfolio at a cocktail party, if for no other reason than that a stock tip might be gleaned from the subsequent discussion. Fueling the mania was a new type of homemade entrepreneur: the day trader. In the late 1990s it became cool to sit in your house all day in front of your computer, keeping one eye on Yahoo.com’s financial chatboards and the other on the ticker crawl at the bottom of CNBC, while trading your own assets through a company like Ameritrade. Individual investors had become one-person Wall Street brokerages, achieving some sort of simulacrum of the American Dream.
These day traders—who made multiple trades every day—were gold to Ameritrade, which collected money on each transaction. With hundreds of online brokers essentially offering the same service, scale became key. Ameritrade spent lavishly to attract new customers. By 2000 the company’s marketing budget was $200 million, a whopping one-third of the company’s revenues. That imbalance was just one sign that things were getting out of hand.
Somewhere around 2000, investors began to realize that money plowed into Internet companies and tech firms with no real business plans and no real revenues was perhaps not a great idea. The spigot ran dry. The stock market sank. Though it remained the prevailing topic in American households, it was now a conversation that was all doom and gloom. Almost overnight, day trading lost its appeal, looking more like folly than the future.
All of the major online discount brokers got hammered, but none quite so forcefully as Ameritrade. The company lost $14 million in 2000, despite, or maybe because of, its huge marketing splurge. That was nothing compared to what was to come. Ameritrade lost another $91 million the following year. It suffered the double whammy of having customers who were trading less yet were becoming more expensive to attract and retain.
Ricketts’s twenty-five-year-old company, which had risen so fast and spectacularly during the dot-com boom, looked like it might go out of business, a crisp cinder falling back down to earth after the big fireworks show. In order to save Ameritrade, Ricketts realized he had to look outside the company. Even the most successful insurgents rarely make for good leaders after the revolution.
What he needed was a motivational leader who had a strong background in traditional finance. He needed that someone fast. Ricketts looked for salvation from among the ranks of one of those old-school Wall Street firms that he had been trying to destroy.
By 2001 Joe Moglia was maybe one rung below Merrill’s top level, and just beginning his seventeenth year there. But despite his accomplishments and his proximity to the top, Joe wasn’t going to be Merrill’s CEO anytime soon. Entrenched above him was a group of executives with twenty-plus years at the firm, guys like Herbert Allison, Tom Davis, Win Smith, Jeffrey Peek, and Stanley O’Neal (who would in fact become its CEO in 2003). “I don’t think Joe was on the CEO track,” says Roger Vasey. “Joe had a very strong following at Merrill, but the board was too obsessed with moving Stan into the [CEO] role.”
And anyway, Joe’s philosophy may not have fit in with Merrill’s gradual shift away from a teamwork-oriented firm to one that rewarded individual glory and increasing greed. “Joe had integrity and he treated people well. He was a team guy,” says Mike Quinn. “He wouldn’t have thrived or enjoyed himself in the regime that took over under Stan O’Neal.”
Still, Joe maintained excellent relationships with upper management, including O’Neal. By 2001 it looked like Joe could have worked at Merrill, or at a comparably high position at another financial firm, and made millions a year for the rest of his working life. Many people would have been very happy with that career.
Joe wasn’t.
“The bottom line was that I always wanted to be the leader,” he says. And that desire didn’t look like it would be fulfilled at Merrill anytime soon.
After a series of three interviews with Ricketts, Joe was offered the CEO job at Ameritrade in 2001. Joe realized that the company was in serious trouble. But he sold Ricketts a vision: the company could be not only the world’s best online broker, it could become a place that long-term investors could call home.
Leaving Merrill, however, wasn’t a slam-dunk decision. First there was the family component. Joe and Amy had been married for six years at the time. They lived in Chatham, New Jersey, with Amy’s two sons, John (15) and Jeff (12). Amy liked the East Coast. Having seen the cost of what he’d put his family through during his coaching days, Joe was a bit gun-shy about how the move would affect his marriage, and his stepsons. Amy had her reservations, too. “At the time Joe was getting offers from everywhere,” she says. “They were raining down. I just didn’t think he was serious at first about Ameritrade. But when he told me that he was starting to get serious, I asked, sort of in an offhand manner, where it was located. He said ‘Omaha.’ I said, ‘Um, where?’”
But Amy knew that this was Joe’s shot—Ameritrade was the only CEO job he’d been offered. “It took a little while to adjust to the idea, then I thought, Well, if we go there, what the hell. This will be an adventure.”
Then there was the career side of the equation. Executives that far up the food chain at Merrill rarely, if ever, left for such risky propositions. “Make no mistake, leaving Merrill was a huge decision,” says Waterhouse’s Frank Petrilli. “Ameritrade was on the balls of its ass. No one thought they would make it.”
The fact that Joe was even considering the challenging move was no surprise to those who knew him well. “Joe loves to put himself in situations where he has to pull a rabbit out of his hat,” says his brother Johnny.
Some of Joe’s coworkers were supportive. “Joe knew there was a huge risk in giving up the certainty he had at Merrill. But he was just so damn enthusiastic about the Ameritrade thing. I encouraged him, though he really didn’t need it,” says James Gorman, who ran the retail sales force at Merrill then.
Others were less sanguine. Dave Komansky, then the Merrill CEO (preceding O’Neal), was shocked. “I didn’t like their business model and I couldn’t fathom living in Nebraska. I mean, Omaha? I thought he was crazy.” But Komansky believed Joe had handled the Ameritrade job offer in a totally honorable manner. “He was very upfront about it right away. Most guys will sneak around then surprise you with something like that,” he says. As a reward, Komansky decided to give Joe all of his restricted stock in Merrill (worth millions), an unusual parting gift for an executive who was leaving for another firm. “I appreciated what he’d done here and how he handled the Ameritrade thing, so I arranged that he would get every single penny.”
But before Joe made his final decision, he made a last-minute call to Randy MacDonald, who, as Ameritrade’s chief financial officer, knew the company’s books better than anyone. Joe had one more question: is this company going out of business?
“I don’t think so,” answered MacDonald. He didn’t sound entirely convincing.
Joe took the job anyway.
Joe arranged for his salary to be based 85 percent in Ameritrade stock. He would sink or swim with the fortunes of the company he was now charged with running.
He moved to Omaha in April 2001, a few months before Amy and her kids would arrive at the end of the school year. One of his first acts as the CEO was painful: he laid off 40 percent of Ameritrade’s employees, most of whom worked in divisions, like the overseas and real estate offices, that Joe didn’t consider as part of the core business. “We had to do it merely to survive,” says Joe. “But no one likes to come in and be the hatchet man.” He also shut down the geyser that had been the marketing budget, cutting the spending down to one-fifth of its total the year before.
With expenses cut, Joe went on the offensive. The company’s old model—offer the lowest price on trades, then market the hell out of it—worked well in a bull market, but was a loser in a serious bear market. Joe decided to focus on what he saw as the company’s core strength—its transaction model. “We had an efficient engine already in place. We just needed to all be concentrating on that one thing that we did well,” he says. “The question was how to get more business running through it.” The answer was to get more accounts by buying up other companies.
Joe says the Ameritrade job appealed to him for four reasons: he liked both the brand and the technology that Ricketts had acquired for making customer transactions; bad as they seemed, he thought the financials were still strong enough to give him access to money to buy up some of the smaller online brokers; and no other big competitor in the space had embarked on such a consolidation strategy.
“I guess two out of four ain’t bad,” says Joe in retrospect. The brand was solid and the transaction technology did indeed turn out to be great, one of the best and most efficient in the industry. But the financials of the company were worse than Joe had believed. By the time Joe took over in the spring of 2001, the company was on track to lose $100 million in that fiscal year. There was no cash on hand, and Joe didn’t want to take on more debt at crippling lending rates. Any acquisitions would have to be financed with Ameritrade stock, which put the risk solely on the shoulders of the company’s shareholders. To top it off, competitors like Waterhouse and E-Trade had also begun making noises about buying up some smaller companies. Suddenly, Joe’s consolidation plan had some competition.
The online brokerage industry by early 2001 was littered with failing companies that were too wounded by the dot-com bust to carry on by themselves. All of them could be had for cheap. Some of them even had good accounts. The key for Joe and his team at Ameritrade was to find the best one, buy it, then add its accounts to Ameritrade as seamlessly as possible. This was easier said than done.
At the time Ameritrade had no cachet with Wall Street analysts. The same folks who’d been touting Ameritrade stock a year before wouldn’t even deign to talk about it now. As its new CEO, Joe first sought to restore Ameritrade’s credibility. He went to Wall Street and met with a group of analysts who covered the online discount brokerage industry. Part of Joe’s challenge was to convince those outside of the company—and especially those analysts whose job it was to cover Ameritrade and predict its future—that Ameritrade would not fail. It helped that Joe was a natural storyteller. He told them that once he got Ameritrade’s act together—and he was sure he would—he would start to consolidate the industry. “He was really different from most CEOs,” says Richard Repetto, a stock analyst at Sandler O’Neil. “He had this friendly manner about him. Still, what he was talking about seemed like a stretch at the time. It was a long shot.”
But Joe went even further than that, and told them about his plans for the future, for turning Ameritrade into a place where investors would bring their cash and manage it for the long term. “Then they thought I was out of my mind,” Joe says.
In late July 2001 Joe made his first move. Concerned as he was about the risk to the company’s shareholders, he decided it was in their best interest to expand, and with $154 million of his company’s stock, he bought National Discount Brokers. The deal added 316,000 accounts to Ameritrade’s stable of 1.5 million. Joe got NDB for dimes on the dollar. Just nine months earlier, Deutsche Bank had purchased 85 percent of NDB for $850 million. Still, $154 million was a lot for Ameritrade to spend, especially since the company was still losing money. And the real work would be in the integration. They had to hang on to those NDB accounts. “If we don’t get the integration right, right in the middle of a recession, we lose our marketplace and we go out of business,” says Joe. He put together a team to work on the integration and told them they had only one job: make it work.
On September 6, 2001, Ameritrade closed the NDB deal. Though the integration had already started and was moving in the right direction, Joe felt he had to keep pressing and keep looking for more acquisition targets. NDB gave him a few months of breathing room. But he needed to make a bigger splash with his next purchase.
Cornhuskers football is a religion in the state of Nebraska, and as a new arrival, Joe had to pay his respects at the state’s high church: Memorial Stadium in Lincoln. To turn down an invitation to a Nebraska football game would have been viewed as aberrant behavior at best, and flat-out rude at worst—especially for a former coach.
On September 8, 2001, some Ameritrade colleagues insisted that Joe accompany them to the Notre Dame–Nebraska game in Lincoln. He had no idea how he would feel. It was literally the first football game, other than some of Kevin’s high school games, that he had been to in person since that long-ago game back at Dartmouth in 1984. Joe had successfully blocked out football from his consciousness. “It was a survival thing, really,” he says. “I needed to maintain full concentration on my business career. I was a little scared of what even seeing football would do to me, what emotions it would bring up.”
Joe remembers walking into Memorial Stadium that afternoon, thrilling to the energy of what was an ocean of red-clad fans. That old excitement hit him. His stomach did flip-flops, like it always did just before game time. As the game started, Joe began to feel a pang, a yearning for the road not taken. “I remember looking down at the field at [Frank] Solich [then the Nebraska coach] and thinking, That could be me there on that sideline,” he says.
But he had chosen another path. And in his latest move, he had committed himself to Ameritrade, which would die a quick death if he didn’t quickly turn things around. Maybe this wasn’t the path his heart most desired, but it was the one he was on for now, and he knew he owed it to his new company to dive in with everything he had.
Watching the game turned out to be a painful experience for Joe, just as it had been in 1984. He squirmed in his seat. He was ready to leave after the first quarter and to start trying to forget football again. He managed to make it through the game, but he vowed to do his best to avoid having to attend another one. And sure enough, he would be more or less successful in doing so for the duration of his time at Ameritrade.
The game itself turned out to be an easy 27–10 win for Nebraska. Eric Crouch, in what would be his Heisman Trophy–winning season, had a relatively quiet game, passing for one touchdown. There was no way of knowing then that eight years later, Joe would become a member of the Cornhuskers coaching staff working as an unpaid assistant. And that exactly ten years later, he would be on the sidelines in a different stadium sixty miles to the northeast, a head coach again, running another Nebraska team, which would be led by none other than…Eric Crouch.
Three days after Joe attended the Nebraska game, the world came to a complete halt. When Joe flipped on his television that morning, he saw the Twin Towers, once described by Ian Frazier as the city’s “exclamation points,” in flames. New York City was his hometown. He’d grown up there and still owned that small studio apartment in Battery Park City just a few blocks away from ground zero. And Kara and Kevin were still working at Merrill Lynch in the World Financial Center, across which, on sunny mornings, the towers cast their long shadows.
As the towers burned, Joe received a phone call from Kim, who was then living in Brooklyn. She told him that she’d spoken to Kara and Kevin and that they were both okay, and that the Merrill Lynch building was being evacuated. Joe worried about the many people he knew who worked in the towers, but was relieved that his kids seemed safe. Meanwhile, Ameritrade was in emergency mode. Joe spent the early morning running around the offices, ordering associates to reach out to their clients to assure them that their money was safe.
Then Joe heard muffled cries coming from Ameritrade’s main floor, where people had gathered around the television. When he went to see what had happened, he discovered that somehow, the south tower had collapsed. Half an hour later, the north tower went down, too.
Joe’s secretary, Peggy Henderson, told him that Kim was on the line again. Joe raced to his office to pick up the call. Kim told him that Kara was safe in New Jersey. Then she paused for a moment that seemed to go on forever. “Dad, have you heard from Kevin?” she asked. The last time anyone had seen him, he was headed to the towers to help out. And now they were both down.
Joe sat in his office alone, stunned. He and Kim continually tried Kevin’s cell phone but got no answer. It hit him that there was a real chance that he had lost his son. “I felt helpless. I was in Omaha. There was nothing I could do,” Joe says.
One thing gave him solace. Thanks to that moment in his childhood when he had realized how important it was to tell his mother how much he loved her, he had made sure that his children knew how he felt about them. So as he sat in his Ameritrade office in the hours after the towers fell, trying his best to push his worry about Kevin back into some box in his head where it could be contained, it comforted him to remember that he had made his feelings known to his son: “I had told Kevin everything I needed to tell him. Kevin knew that I loved him.”
At 5:00 p.m., six long hours since learning that Kevin was missing, Joe’s cell phone rang. He was sitting by himself at his desk in his Ameritrade office. “Dad, it’s Kevin. I’m fine.” He had been near the towers, but when he saw he couldn’t help, he’d walked home. His cell phone, like many New Yorkers’ phones that day, didn’t work.
Tears streamed instantly down Joe’s face. “I love you, Kevin.”
“I know. I love you, too, Dad.”
The rush of relief Joe felt when he heard Kevin’s voice took everything out of him. But he would have little time to recharge. He still had to figure out how to save his company.
Ameritrade was in dire trouble. At the height of the tech boom in 1999 and even into 2000, the company was netting good money on trades, an average of $1 per every $10 traded. But in 2001, due to the drop in trade volume and then to the aftereffects of 9/11 on the stock market, Ameritrade began to lose 80 cents for every $10 traded. This was alarming news, especially given the fact that the union with NDB had been nearly flawless—a stunning 98 percent of NDB customers stayed on with Ameritrade after the merger.
Joe needed to stick to his game plan and needed to buy another company. And this one needed to be big.
Datek Online was a privately held online discount broker known for its proprietary technology, which conducted superfast, superaccurate web-based stock trades (the technology is what basically runs the NASDAQ today). Because of that technology, Datek had the most desirable group of clients in the entire online brokerage industry: 250,000 savvy, wealthy folks who made a lot of transactions.
Joe wanted Datek and its accounts, but unfortunately, so did everyone else. Competitors E-Trade and TD Waterhouse were making bids. So were Wells Fargo and Bank of America, big banks looking for an entrée into online trading. The problem for Joe was that no one was taking Ameritrade seriously. “Datek’s investment bankers wouldn’t even give us the books to look over,” says Randy MacDonald, Ameritrade’s CFO. “They didn’t think we were legit.”
Joe wasn’t deterred. Datek was owned by a group of private equity firms at the time. Joe correctly assessed Bain Capital and Silver Lake Partners as the company’s most influential owners. He badgered them. As always, he felt that if he could just get in front of them and sell them his plan in person, he could win. Joe finally got Steve Pagliuca, a managing partner at Bain, on the phone, and talked him into having dinner with him in Bain’s hometown of Boston.
Joe met Pagliuca at Legal Sea Foods on Boston’s Long Wharf. He told Pagliuca of his plan to become the biggest player in online trading, then to begin to transform the company into an asset gatherer. He sketched out an outline on a paper dinner napkin. “He was pretty passionate,” says Pagliuca, now an owner of the Boston Celtics. “That certainly got the ball rolling.”
Next Joe met with Glenn Hutchins, a cofounder of Silver Lake. He gave him the same pitch. Hutchins, too, was impressed with Joe’s fervor. “I wasn’t sure I agreed with Joe on the asset-gathering strategy. I didn’t really find it that compelling,” says Hutchins. “But I did find Joe compelling.”
In April 2002 Ameritrade acquired Datek Online for $1.3 billion in stock. The combined company, with three million accounts, became the biggest online broker in terms of trade volume. Best of all, the quality of the Datek customers meant that Ameritrade—if all went well—would start making money again on trades.
Ameritrade had taken the other bidders totally by surprise. “Honestly we didn’t even consider them a competitor at first,” says Frank Petrilli from TD Waterhouse. “We thought they weren’t going to do anything, since they were losing so much money.”
But Silver Lake and Bain and the rest of the private equity folks liked what they saw in Ameritrade, and liked where Joe intended to take it, so much so that instead of going the usual route and cashing out after the sale, they decided to roll over their shares into Ameritrade. “We believed in Joe,” says Pagliuca, and they wanted to participate in his long-term asset-gathering plan.
The purchase of Datek made perfect sense for Ameritrade. It combined the best customers and technology with a great brand name and distribution model. It was a necessary move for Ameritrade to ensure its survival. But there was significant danger in the deal: as with the NDB purchase, Ameritrade had to be able to fully digest Datek, or it would kill its host.
Joe brought together the same team that had handled the NDB integration so well. Merging the two companies’ tech platforms and accounts would be arduous, but not impossible. The bigger challenge had to do with a culture clash: although the people in the two companies did basically the same thing, they came at it in very different ways and had completely different work environments.
Datek was a hip, urban company, based in Jersey City, just across the Hudson River from Manhattan. “A lot of these folks were in their twenties,” says Asiff Hirji, a technology expert from Bain & Co., whom Joe would eventually hire as Ameritrade’s chief operating officer. “They had body piercings and tattoos and rode skateboards to work.”
Ameritrade, by contrast, was still very much Ricketts’s vision of the “pride of the community” company, its employees gushing with Midwestern politeness and wearing blazers and ties and sensible shoes. Its headquarters, then and now, are located in an industrial park in southwest Omaha, right next to a Kellogg’s cereal plant. An east wind carries the scent of Frosted Flakes. A west wind is not so sweet: Ameritrade is also down the road from a pork-rendering plant.
Joe realized that he had to make an emotional connection with the Datek troops or he would risk losing them and put the integration in jeopardy. He traveled to Datek’s Jersey City offices and called all of the employees together for a meeting.
They were expecting an “aw-shucks” Midwesterner. Instead what they got was a passionate plea from a man whose speech was laced with the strong, never-to-be-lost traces of his New York City upbringing. Joe talked to these tattooed, twenty-something hipsters about his childhood in the inner city. He talked about his two friends who died and the others who, through their life choices, didn’t make it out of the ’hood, about how he had had to take responsibility for himself to make something of his life. “If you don’t want to work here anymore, that’s fine. I respect that. But if you do, you have to take responsibility to help make this work,” Joe told them. In other words, “be a man.”
Hirji was there that day. “Joe has that gift that the best politicians have. He shares very personal pieces of his back story and makes it relevant, interweaving it into a bigger narrative,” he says. “He’s talking to a big group, but somehow you feel like he is talking to you and only you.”
By Christmas 2002, the integration was moving along, but slowly. People on both sides of the deal were tired and short-fused, which resulted in bickering stalemates. Joe decided to have a Christmas party at his house in west Omaha. He invited all of the senior leadership from both Datek and Ameritrade. Most of the Ameritrade folks had their spouses with them. The Datek folks, primarily from the east, did not. Joe had hired a band. After dinner, the band started playing and people began to hit the dance floor. None of the Datek leadership was dancing. Instead, they sat around the tables and gossiped with each other. Joe knew he had to do something.
With a grand flourish, he walked over to the tables, grabbed Hirji and pulled him onto the floor. He started dancing with him, violently twisting to a Chubby Checker tune. The Datek folks, as embittered as they were, couldn’t help themselves. They cracked up in laughter at this red-haired nut who was concentrating so hard and working himself up into a serious sweat. Joe had no problem making fun of himself to help a greater cause. “The mood of the party changed instantly,” says Hirji. “Also, it was the first time I’d ever danced with a man.”
A few months later, the integration of Datek into Ameritrade was basically done. “This was a transformational deal and integration,” says Roger McNamee, a cofounder of Silver Lake and the venture capital firm Elevation Partners. “Datek took Ameritrade from being one of a bunch to being the one.”
After losing money for two straight years, Ameritrade finished 2002 with a net profit of $131 million, a spectacular turnaround for a company that had been left for dead eighteen months before.
With the Datek acquisition, Joe had pulled off something even bigger in the boardroom. He had turned Ameritrade into a real public company, with a real board and a more diversified group of shareholders. The acquisition meant that Ricketts’s share in the company he had founded went from 56 percent down to 32 percent. He was still the largest single shareholder and the chairman of the board, and still controlled three of the board’s eight seats. But the private equity folks, combined, matched his 32 percent share and had two seats on the board (while the remaining three seats were held by independent members). Joe had, in essence, convinced Ricketts to give up a degree of control of the company for the betterment of himself and the other shareholders.
Joe kept pushing consolidation. From 2002 to 2005, Ameritrade snapped up four smaller companies with a combined total of 175,000 accounts. These purchases were important because of what they represented in sum, which was somewhat akin to what John D. Rockefeller had done 125 years earlier in buying up dozens of small oil refineries in Ohio and Pennsylvania to build up Standard Oil.
Each of these small fry was easily absorbed by Ameritrade, which no longer had to worry about choking on its food. Joe could now begin setting the stage for the next phase of the company, part two of the game plan he had sold to Ricketts in late 2000.
Joe was only halfway to his goal at Ameritrade when football reared its head yet again. This time, though, it wasn’t a coaching job that was being dangled.
In 2004 Joe got a surprise call from a well-connected friend who told him that the National Football League’s commissioner, Paul Tagliabue, was going to retire in 2006. The friend thought that Joe might be a good candidate for the job.
Joe, of course, had never shaken the football bug. He’d been tempted to go back to coaching on a few occasions, especially when he got the call about the University of Buffalo job while at Merrill a decade before. But each time he’d decided he’d not quite played out his business career to its full extent. Head over heart.
He’d always believed that if he were ever to return, it would have to be as a head coach. But the NFL commissioner job intrigued him. It seemed like a way to get back to football and use what he’d learned during his business career. His contract with Ameritrade was supposed to end in 2005. Though Joe believed he would be able to work out an extension if he wanted, the exit door was ajar. The question was whether he wanted to walk through it.
But just as Joe started to put together a plan for pursuing the job, an opportunity presented itself. It was too good to pass up. It would give him the chance to complete his original mission at Ameritrade.
By 2004 the online brokerage industry had undergone so much consolidation that it was now limited to basically five big players: Ameritrade, Charles Schwab, E-Trade, Fidelity, and TD Waterhouse. All of them save for Ameritrade now had banks and thus were already asset gatherers and not just online brokers. Ameritrade did have one advantage over its peers. It was far and away the best online broker. But if it was to take the next step toward becoming a financial superpower, Joe needed a bank.
Joe put aside the idea of becoming the NFL commissioner. Instead, he signed a new contract with Ameritrade, one that would allow him to stay on long enough to accomplish his final goal. The most logical way to do that would be to partner up with one of the other big players in the industry. Over dinners and through countless hours of discussions, Joe learned that neither Schwab nor Fidelity, a private, family-run company, was very interested in partnering up. That left TD Waterhouse and E-Trade.
E-Trade was run by Mitch Caplan, who, like Joe, had rescued his company from the dot-com meltdown. But unlike Joe, he had accomplished this in large part due to his company’s bank, which by 2005 had begun to purchase third-party mortgages.
TD Waterhouse was run by Frank Petrilli, who had been a year behind Joe at both Fordham Prep and Fordham University (though the two had not known each other at either school). Waterhouse’s brokerage department seemed to be falling behind a bit in the online transaction race and its parent company—the Canadian bank Toronto-Dominion—appeared eager to do a deal, and had been impressed with how well Joe had delivered results in the Datek deal.
Either of the two companies, because of their banks, seemed able to provide Joe with what he was looking for. The three companies soon embarked on what would turn into a wild, partner-swapping dance. First it looked as if Ameritrade and TD Waterhouse would link up. Then it was E-Trade and TD Waterhouse. Then it again appeared as if Ameritrade would be paired with TD Waterhouse.
That company was Joe’s preferred partner. E-Trade had the better brand name, but after doing due diligence on the company, Joe was scared off by some of the assets held by E-Trade’s bank—specifically its third-party mortgages. “I had no idea at the time what a ticking time bomb those mortgages actually would turn out to be,” says Joe. But he knew enough to be wary.
So Joe started negotiating with TD Waterhouse. However, he had serious problems back at Ameritrade. His board was not all aligned in its preference for Waterhouse. In particular, the founder and owner of the company wanted to pair up with E-Trade instead.
Up until then, Ricketts had been willing to give up ever-escalating increments of his control over the company. With each company that Joe had bought from 2001 onward, Ricketts’s share of the company had shrunk.
But now Ricketts had had enough.
According to MacDonald and Hirji, Ricketts did not want to do a deal with TD Waterhouse because it was so large that it would dilute his shares to the point where he would no longer be Ameritrade’s largest shareholder. Ricketts believed that he could maintain his dominant position if Ameritrade went with E-Trade instead. “It was never really about the money for Ricketts,” says MacDonald. “It was always about control. Ameritrade was his baby.”
MacDonald also says that Ricketts wanted his son, Pete, who was then chief operating officer at Ameritrade, to eventually take over the company. In a TD Waterhouse deal, that ascension seemed highly unlikely. As a result, Joe had some very dangerous shoals to navigate.
In the spring of 2005, after tense back-and-forth negotiations, Ameritrade and TD (the parent bank) had worked out a deal for Waterhouse. TD would be effectively buying Ameritrade, becoming the company’s largest shareholder, grabbing seats on the board and paying Ameritrade’s shareholders a $2 dividend per share. Ameritrade—and Joe in particular—would remain the leaders of the new company. “That’s the way we wanted it,” says Ed Clark, the CEO of TD. “We believed in Joe.”
But back in Omaha, Ricketts had been busy negotiating his own deal with E-Trade, undermining his CEO. According to Randy MacDonald, Joe was hurt by Ricketts’s actions, but continued to play the good soldier, trying to determine what was best for the shareholders.
Ricketts eventually brought the deal he had negotiated with E-Trade to the table. It would allow him to remain the company’s largest shareholder.
The board now had a clear choice.
In the end, the board decided that E-Trade’s assets were just too risky, and they were set to vote for the TD Waterhouse deal. But the drama didn’t end there. At the last minute, E-Trade submitted a $5.5 billion hostile takeover bid for Ameritrade.
Joe had expected the move from Caplan. He had remained in contact with him throughout the process. “We took a walk in Central Park one day and talked about it,” says Caplan. “Joe made it clear that he preferred TD Waterhouse, but if I were to win the deal, he just asked me to take care of his guys.”
Joe still believed the TD Waterhouse deal was the right one for the long-term interests of his shareholders. His position was helped by the fact that E-Trade’s hostile bid scared TD into sweetening its own offer to Ameritrade. Clark boosted the dividend amount, from $2 to $6. Ameritrade’s shareholders would now be getting a lot of money upfront. “It was a safety valve for the shareholders,” says MacDonald. “If the marriage failed, they had a prenup in place.” But the decision was ultimately left to the board.
This constant seesawing made Ameritrade a tense workplace. Though the employees knew nothing of the back-room dealings, they were aware that something big was happening that would affect their lives.
Joe decided to take it upon himself to break the tension. He turned to attempts at levity. He did back and hamstring stretches on his office floor while meeting with his management team. During one particularly tense conference call with Wall Street analysts, Joe, unbeknownst to the others in the room, pushed the mute button on his phone. Then he started yelling: “We’re buying E-Trade! Woo-hoo!”
“We all turned ghost white,” says Katrina Becker, the company’s media strategist. That is until Joe stuck out his index finger for all of them to see, then pushed the mute button off, and spoke calmly to the analysts. “We were all giggling like mad,” says Becker.
And Joe liked to sing, just like his mother. But unlike his mother, he was not always in tune. A couple of times a week, his voice would boom from his office. He sang Cher show tunes at the top of his lungs. He would pop in a CD and sing along to one of his favorite artists, Patrizio Buanne, an Italian baritone. He seemed to embrace Melville’s sentiment in Moby-Dick: “I know not all that may be coming, but be it what it will, I’ll go to it laughing.”
After a few back-and-forth meetings, the Ameritrade board finally voted to go with TD Waterhouse. The $3 billion deal was made in June 2005. The new company would be called TD Ameritrade.
On a conference call with those formerly skeptical analysts announcing the deal, Joe serenaded them with an Italian love ballad that began: “Your eyes shine like the stars.” This time, he did not hit the mute button.
After the deal, a reporter from the Globe and Mail, a Toronto newspaper, asked Ed Clark about the negotiations. Clark replied: “You have no idea what a son of a bitch Joe Moglia is.”
He meant it as a compliment. “Joe obviously preferred the deal with TD Waterhouse, but he never lost sight of who he worked for,” says Clark. “He was a tough negotiator. He did the right thing for his shareholders.”
The largest single shareholder had been Joe Ricketts. The deal left him with 20 percent of the shares; TD was now the biggest shareholder, with 32 percent (with the rights to eventually go up to 45 percent). Ricketts’s son, Pete, resigned from the company shortly thereafter and went into politics.
“Joe’s magic was getting the board to agree to this deal,” says David Livingston, who was the head of corporate development at TD. “He just gradually convinced Ricketts that this was the best deal for him, even though he’d no longer be the largest shareholder.”
Says MacDonald: “Joe brilliantly maintained the ship while never publicly calling anyone out.”
And he hasn’t to this day. Joe refuses to talk about any friction there may have been between him and Ricketts, though it had to sting that his chairman had tried to go against him on the company’s biggest deal. “I will always be thankful to him for giving me a shot to run this company,” he says diplomatically.
By 2006, Joe’s vision for the company was complete. TD Ameritrade was still the leader in online discount trades. But now it was also a company for long-term investors, the “mass affluent” market (people with between $100,000 and $1 million in liquid assets) so coveted by financial services firms. TD Ameritrade had more than one hundred branches and investment advisory services for its six million customers. It was essentially Charles Schwab with better technology.
In the fall of 2006, the integration of the two companies was nearly complete. One night Joe invited his top three lieutenants—MacDonald, Hirji, and Chris Armstrong, the product and marketing director who had come on board to help with the TD Waterhouse integration—to dinner in order to celebrate their achievement. He invited their wives along as well. There Joe told the three men how much he appreciated the sacrifices they’d made, the late nights and early mornings, the missed Thanksgiving dinners.
Then he turned to their wives. “I also want to thank you for your sacrifice. I know it wasn’t easy on your family life,” he said. Then he pulled out three stunning diamond tennis bracelets and presented them to the wives. “Our wives were speechless,” says Hirji. “I know it’s just a gift, but it made our wives so happy. He built a huge amount of loyalty and dedication from us that night because of that happiness.”
The company ended 2006 in great shape, recording its fourth straight year of record revenues and profits. TD Ameritrade’s stock had outperformed the Standard & Poor’s index—the benchmark against which all stocks are measured—by 250 percent. Joe thought he would stay on for two more years to oversee the new company, to help get the best out of the employees and encourage them to concentrate on the things that mattered.
There would be one more huge hurdle to get over, though, one that involved the largest financial calamity since the Depression.
By late 2006, many financial firms in the United States were flying high, recording record profits, inflated by the global housing bubble. With low interest rates, mortgages—and in particular, bundled third-party mortgages—became all the rage.
Joe had seen this before. While at Merrill, he had lived through a few financial crises that were in one way or another caused by risky leverage: the Savings & Loan crisis in the 1980s; Merrill’s own Orange County debacle; and the failure of the hedge fund Long Term Capital.
The real estate boom seemed to Joe like another bubble underpinned by shaky leverage. He didn’t want any part of it. “I’ve just seen the smartest guys in the world get a little bit greedy. Money gets in the way. They get undisciplined. In this case, they thought they’d be smart enough to get out when they saw the real estate market start to crack. But it became like a gambling addiction, like they thought, One more $100 million bet on black and I’ll get out.”
Around this time TD Ameritrade began to get hammered by the media, and by analysts who were wondering why in the hell Joe wasn’t levering up and getting a piece of the hot action.
There were essentially three different ways Joe could have gotten into the mortgage game: he could have started buying the mortgage-backed securities himself, as his old company, Merrill, was doing; he could have bought a company, like E-Trade, that had some of them on its books; or he could have leveraged his own balance sheet. “We were under severe duress to get into the mortgage business somehow. I just never thought it was our strength. It was just too risky,” he says.
But others, in particular two very powerful hedge funds named SAC Capital and JANA Partners, didn’t see it that way. The two firms—led by, respectively, Steve Cohen and Barry Rosenstein, two giants in the financial world—owned 8.4 percent of TD Ameritrade’s stock, enough to be able to make their opinions heard.
In late 2006 and early 2007, Joe had informal talks with Charles Schwab, and floated the idea of a possible merger. Joining Schwab would have made a certain strategic sense. Counting E-Trade, there were essentially three big players left in the space. Combining two of them would have created one of the biggest non–Wall Street–based financial services companies in the world.
Schwab decided that it was still not interested in any sort of merger. Joe had continued, off and on, to talk with Caplan at E-Trade. But by 2007, Joe was getting even more worried about the mortgages on E-Trade’s books. Unlike in 2001, Joe now had the luxury of staying put. He didn’t have to do a merger or an acquisition to survive or even thrive.
SAC and Jana did not agree. The hedge funds are both known as “activist” shareholders; that is, they seek to identify hidden value in a company, then through either accumulating shares in the company or using public pressure (or most of the time, both), they try to push the company into action.
In this case they wanted TD Ameritrade to combine with either Schwab or E-Trade. On May 29, 2007, the activists sent a letter to TD Ameritrade’s board urging that course of action because of the “massive value creation opportunity.” After sending the letter, the activists began a full-scale assault on the board, calling each of the members individually, writing e-mails and more letters. “There was no technique they didn’t use to get at us,” says board member Ed Clark.
Their cause was helped by the fact that, according to MacDonald, the hedge funders had one key TD Ameritrade board member in their corner: Ricketts. He again wanted to pair up with E-Trade and regain some of the control that he had lost.
But both Joe and Clark agreed that a merger with E-Trade would be a very bad idea. Not having Ricketts in their corner was troubling, to say the least. But Joe started to fret about the other board members, too. “They were under tremendous pressure and I was worried that they would crack,” says Joe.
He called an emergency meeting in New York. At that meeting, he and his management team hit on a bold plan. They didn’t have anything to hide. Why not go public with the whole thing?
And that’s just what they did. TD Ameritrade released the letter from the activists to the media with a response from Joe in which he pointed out that his company hadn’t exactly been sitting on its hands for the last six years. They’d done eight deals. And if something ever made sense for their shareholders, Joe wrote, he’d do it in a heartbeat.
The press loved his gumption. Joe did the business TV show circuit where his blunt, no-BS style was particularly effective. On each show, Joe reiterated what he had said in his letter. Then he would tack on his masterstroke, saying: “Look, SAC and JANA are just doing their jobs. They want us to merge, they want a pop in the stock, then they want to get out. That’s fine. That’s their job and I respect that. But my job is to do the right thing by our shareholders. If we thought E-Trade was a good combination and would be good for the long-term interests of this company’s shareholders, we would do it. But we just don’t believe it is.”
With that, it was all effectively over. By going public with the letter and the response, Joe had accomplished three critical objectives: He had framed the debate in his favor. By alerting the public that these two activists were interested in TD Ameritrade, he had made the stock price rise—which, of course, prevented SAC and JANA from buying any more shares. And he’d successfully nipped in the bud—once again—a possible board insurgency.
Game. Set. Match.
(Both SAC and JANA would sell their shares later on for handsome profits.)
Not doing a deal with E-Trade turned out to be one of the best moves Joe ever made. As it developed, in late 2007, E-Trade became one of the first financial firms to be hit by the bursting of the housing bubble. Caplan left E-Trade that November. “I have nothing but nice things to say about Joe. He was always honest and straightforward with me. We remained congenial throughout,” Caplan says. Joe called him the day he resigned to wish him luck.
In 2008, when the world’s debt bill finally came due, the overleveraged world economy was brought to its knees. Americans saw more than a quarter of their net worth wiped out in a flash. Lehman Brothers failed. Joe’s old company, the once-conservative Merrill Lynch, lost an almost inconceivable $28 billion because of its gamble on subprime mortgages, and was sold on the cheap to Bank of America. E-Trade lost $1.3 billion and nearly sank.
But TD Ameritrade prospered. In 2008 the company had its sixth straight year of record growth. As the rest of the financial world crumbled, TD Ameritrade made a profit of $800 million, its record. Its performance during that time remains one of the most underreported success stories from the 2008 financial crisis. The old mantra stands true: you don’t get credit for not doing something stupid.
What happened during the financial crisis, especially at Merrill, with which he still felt an emotional connection and where he still had many friends, hurt and angered Joe. His old firm essentially went under because its leaders forgot for whom they worked: their shareholders and their employees. “Merrill had something like eighty thousand employees,” says Joe. “Many, if not most of them, had their hard-earned money in the company’s stock. That all just disappeared. That’s just not right. Those leaders, at Merrill and elsewhere on Wall Street, were never really punished for what they did. There should have been consequences. They should have given back the money they made on the bubble. Or there should have been some sort of legal ramifications.”
Joe never took his eye off what he believed was his fundamental duty at TD Ameritrade: to take care of the shareholders and the employees.
During his tenure at TD Ameritrade, client assets grew from $24 billion to $300 billion, and the market cap went from $700 million to $10 billion. And the company grew its revenues every year.
“What Joe did was unbelievable. Under his guidance, the company followed the best possible path it could have followed,” says Silver Lake’s Roger McNamee. “I give a lot of credit to Ricketts, too, for hiring Joe and for listening to him even though his instincts might have told him not to.”
The Ricketts family even gave Joe his due. “He was critical to our success during that time,” says Pete Ricketts.
After all, despite their differences, Joe’s tenure at TD Ameritrade paid off with a very tangible benefit for them. In 2009, the Ricketts family bought the Chicago Cubs, one of the sports world’s most recognizable franchises, for $845 million, the largest amount ever paid for a baseball team. A lot of that money was the fruit of Joe’s vision and work. (In 2011, J. Joseph Ricketts resigned from the board of the company that he founded in 1975.)
In late 2008, Joe retired from the CEO post and became TD Ameritrade’s chairman. His work there was done. In his last year Joe made $21 million, 90 percent of which was based on the performance of the company’s stock. He also owned $121 million worth of TD Ameritrade stock. “Joe created wealth for himself and for his shareholders,” says Caplan. “Not every CEO does that.”
What Joe loves and craves most of all in his work life is intensity. He finds it quite rapturous. It allows him to blaze each day rather than shuffle along, to be acutely aware that he is alive. He has sought out and achieved this intensity all of his life, starting in his childhood, when he worked hard to become a good student and athlete while also pushing the extracurricular “bad kid” stuff—the drinking, the fighting—right to the edge.
Some people shrink in the face of such intensity. Joe thrives under it. He can get anxious and emotional, sometimes even short-tempered enough to raise his voice, in the days and weeks leading up to an event. But when the moment arrives—during an earnings call, or a critical moment in a football game—something comes over him, some sort of serenity. That calmness and cool filters down to others. It is the true key to his uncanny ability to lead.
To invoke an old cliché, Joe loves the journey, not the destination. When a destination is reached, Joe then gets restless, bored. At Merrill, he seemed to have peaked in 2001. So he sought out another challenge, and found it at TD Ameritrade. In 2008, with his goals accomplished, and with the company enviably situated after the financial crisis, that journey, too, had come to its end.
And so he stepped down, intending to relax and enjoy some free time. Instead he was soon to resume the journey he had never completed—as a football coach. Finance has its intense moments, to be sure: the daily eye on the company stock price, the quarterly earnings calls, the deal making and deal breaking. But coaching was king. “Nothing is more intense than in-season football,” says Joe.
He had no idea how intense it was going to turn out to be—both on and off the field.