Schwab in Talks to Buy USAA Wealth-Management, Brokerage Units -- 2nd Update
July 15 2019 - 6:43PM
Dow Jones News
By Dana Cimilluca, Telis Demos and Justin Baer
Charles Schwab Corp. is in talks to buy brokerage and
wealth-management operations from USAA for roughly $2 billion, a
move that would push the discount-brokerage pioneer further into
the coveted business of financial advice.
The deal, which could bring Schwab roughly $100 billion of
assets from closely held USAA, may be reached this month, people
familiar with the matter said.
San Francisco-based Schwab, which already has north of $3.5
trillion in client assets, has been moving further into wealth
management as it increasingly expands beyond its roots as a
discount broker.
The wealth-management business has grown more crowded in recent
years as financial firms gravitate toward the relatively stable
fees paid for financial advice and the deeper relationships with
clients and their families it facilitates. For some financial
services, low rates, the digitization of Wall Street and changing
investor tastes have driven fees toward zero.
"In this rate environment, it makes sense for Schwab to pivot in
that direction," said Cathy Seifert, an analyst at CFRA
Research.
Schwab's move would be the latest in a string of recent deals by
big wealth advisers and banks to snap up smaller firms as they hunt
for growth in more specialized niches as well as other benefits of
scale. Goldman Sachs Group Inc., for example, earlier this year
agreed to buy boutique wealth manager United Capital Financial
Partners Inc. for $750 million.
A prolonged market selloff after years of gains would darken the
industry's outlook, and some smaller players may be looking to get
ahead of any such downturn by merging with larger peers.
"It is a scale game, and increasingly so," said JMP Securities
analyst Devin Ryan. "That drives consolidation."
Schwab, which reports results Tuesday, has become a powerhouse
in financial services with a market value of almost $55
billion.
It has benefited as investors become increasingly conscious of
the fees they pay and individual brokers defect from Wall Street
along with their clients' assets. Discount brokers including
Schwab, TD Ameritrade Holding Corp. and E*Trade Financial Corp.
have also gotten a boost from the long bull run in stocks following
the financial crisis, which has swelled account balances and helped
them draw in aging baby boomers and do-it-yourself investors.
But competition is intensifying. The sticker price to trade
online has been rapidly moving closer to zero, especially since the
rise of upstarts such as Robinhood Markets Inc., which are geared
toward younger investors. Established online brokers such as Schwab
have shifted their businesses to gathering and managing assets,
diversifying away from trading.
In addition to financial advice, Schwab is also a major
custodian for other advisory firms. It is likely the company would
bring in-house any of the back-office work an acquired business had
outsourced to other custodians, Mr. Ryan said. "So every dollar of
assets becomes more profitable," he said.
Should there be a deal, it would transform San Antonio-based
USAA, which provides an array of financial services to military
customers, into more of a pure-play insurer.
USAA offers home, life and auto insurance as well as online
banking and investment services to current and former military
personnel and their families. It was founded in 1922 by a group of
25 Army officers to self-insure their vehicles and was originally
known as the United States Army Automobile Association, according
to USAA's website.
USAA is the envy of much of the insurance industry when it comes
to customer rankings and retention rates, regularly receiving
accolades from independent research firms. But persuading clients
to hire their insurance company for investment advice hasn't been
an easy sell, and it isn't surprising USAA concluded it was time to
further narrow its focus, analysts said.
The company earlier this month closed a deal to sell its
asset-management business, including its mutual fund and ETF
operations and its 529 college-savings plan, to Victory Capital
Holdings Inc. As of April 30, that USAA business had assets under
management of $81.3 billion.
A transaction, should one be reached, would add to what is
shaping up to be a strong year for financial-services mergers and
acquisitions. So far this year, tie-ups among financial-services
firms have come a fast clip, fueled by a robust U.S. economy,
buoyant financial markets and a loosening of regulatory oversight.
There has been $138.8 billion of financial M&A so far in 2019,
compared with $117.9 billion at this time last year, according to
Dealogic.
--Lisa Beilfuss contributed to this article.
Write to Dana Cimilluca at dana.cimilluca@wsj.com, Telis Demos
at telis.demos@wsj.com and Justin Baer at justin.baer@wsj.com
(END) Dow Jones Newswires
July 15, 2019 18:28 ET (22:28 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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