US Brokerage Firm Charles Schwab Acquires Rival TD Ameritrade For $26 Bn
Charles Schwab Corp., an early champion of retail brokerage services, announced Monday it will acquire rival TD Ameritrade for around $26 billion amid stiffening competition to attract small investors.
The all-stock deal creates a giant that serves clients with $5 trillion in assets and will enable the companies to cut costs at a time when they have dropped commission fees in the face of competition from newer entrants.
"With this transaction, we will capitalize on the unique opportunity to build a firm with the soul of a challenger and the resources of a large financial services institution that will be uniquely positioned to serve the investment, trading and wealth management needs of investors across every phase of their financial journeys," said Schwab Chief Executive Walt Bettinger.
In the 1970s, the two companies revolutionized the way small investors placed their money on Wall Street by taking on big established brokerages that set the rules for such transactions and often charged handsome fees for their services.
But the sector has been challenged in recent years by new entrants and by new initiatives by larger banks that take advantage of mobile platforms.
In October, Schwab announced that it was removing charges of $4.95 per trade on stocks and exchange traded funds.
Schwab's move spurred a similar announcement by TD Ameritrade and from E*Trade, another rival. The shift is a response to startups like Robinhood that have offered commission-free trades for the last few years.
Besides the loss of revenues from commissions, both Schwab and TD Ameritrade have also been pressured by lower interest rates.
A note from Bank of America Merrill Lynch last week following news of talks between Schwab and TD Ameritrade predicted the deal could spur other consolidation.
Most companies in the sector are probably "in merger discussions given the pressures on the business, this transaction, game theory, as well as the attractive synergies and accretion," Bank of America said.
"Over time, if firms are left out, it could create some pressure on those stocks, and as the distribution platforms become larger, it could also create a bit more pressure for the asset management industry."
The companies expect to cull savings of $1.8 billion to $2 billion through administrative, real estate and other costs.
Integration of the two companies will take between 18 and 36 months. The company's total assets of $5 trillion will place it in the same ballpark as the mastodons BlackRock (around $7 trillion) and Vanguard (around $5.6 trillion).
"There is a definitely headline risk of antitrust but we currently believe it's surmountable," said a note from Morningstar's Michael Wong that pointed to Fidelity, Vanguard and others with larger overall assets under investment.
Shares of TD Ameritrade rose 6.1 percent to $51.04 in mid-morning trading, while Schwab had gained 1.4 percent at $48.89.
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