Charles Schwab to Acquire TD Ameritrade

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Charles Schwab to Acquire TD Ameritrade


Charles Schwab said Monday it would acquire TD Ameritrade in an all-stock transaction valued at $26 billion, a deal that brings together two of the largest online brokerage firms totaling roughly $5 trillion in assets in an industry where intense competition is driving costs down for average investors.

“This would create a true behemoth in the retail brokerage space,” Chris Allen, an analyst at Compass Point Research & Trading, said in a research note.

The deal, announced on Schwab’s website, came just a month after Schwab kicked off a rush to eliminate fees on trades of stock and exchange-traded funds. Schwab’s announcement forced other rivals, including TD Ameritrade and E-Trade, to follow suit.

The brokerage industry has for years been coping with a price war in the fight for retail investors’ dollars, who are increasingly leaning away from picking and owning individual stocks and more toward low-cost index funds and services that incorporate investment advice.

“The move to zero commissions in the industry has put several firms in a really tough spot,” said Alois Pirker, research director at Aite Group, a research firm that tracks the financial services industry.

For Schwab, eliminating commissions cost them perhaps $100 million a quarter, or roughly 4 percent of overall revenue, the firm said. But for other players — like TD Ameritrade and E-Trade, who also cut trading commissions — the loss of that revenue created a much larger dent, leaving them even more vulnerable.

Schwab, Mr. Pirker said, had been diversifying its businesses away from just trading revenue over the past decade. “A couple of years ago, they started calling itself a full-service firm — delivering financial planning and advice in general,” he said. “And the diversification of revenue has gone hand in hand with it.”

Average investors — even those who do not have direct accounts with Schwab or Ameritrade — could be affected by the deal.

The companies are among the largest providers that help support independent registered investment advisers: They hold customer assets, execute and clear trades and handle much of the administrative work that goes along with it.

Schwab is already the largest so-called custodian, with $1.8 trillion in assets managed by registered investment advisers; it controls roughly half of the market according to Keefe, Bruyette & Woods. Ameritrade now ranks as the third largest player, with up to 20 percent of the market. Fidelity is in second place.

“We think this deal may face somewhat significant antitrust hurdles,” Kyle K. Voigt, an analyst at K.B.W. said in a research note, “depending on how the competitive market is viewed by relevant authorities.”

Schwab, based in San Francisco, has more than 19,000 employees and manages an estimated $3.85 trillion in assets. Charles R. Schwab, who founded the discount broker in 1971, is the company’s chairman. TD Ameritrade, with about $1.2 trillion in assets and headquarters in Omaha, has more than 9,000 employees.



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