Schwab In Talks To Buy Rival Broker -- WSJ

Date : 11/22/2019 @ 8:02AM
Source : Dow Jones News
Stock : Charles Schwab Corporation (SCHW)
Quote : 48.74  -0.29 (-0.59%) @ 12:59AM
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Schwab In Talks To Buy Rival Broker -- WSJ

Charles Schwab (NYSE:SCHW)
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Deal could value TD Ameritrade at about $26 billion, reshape discount market

By Rachel Louise Ensign and Christina Rexrode 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 22, 2019).

Charles Schwab Corp. is in talks to buy TD Ameritrade Holding Corp. in a deal that would reshape the discount-brokerage market, where millions of individual investors buy and sell stocks.

The companies have held on-and-off talks for months and were close to a deal Thursday, though there is still no guarantee they will reach one, people familiar with the matter said. If they do, it would likely value TD Ameritrade at around its current market value of $26 billion.

A merger would cement Schwab's role as the dominant player in the industry. The San Francisco-based firm is the largest discount broker, while TD Ameritrade, based in Omaha, Neb., is No. 2. These firms have traditionally catered to lower-end clients with cheap online offerings, a business model that big Wall Street brokers like Morgan Stanley and Bank of America Corp. are increasingly emulating.

A deal could fortify TD Ameritrade and Schwab at a time when they are under pressure from falling trading commissions and a dwindling pool of fees for managing clients' money. Schwab said last month it would make online stock trades free, the latest salvo in a price war that has thinned margins across the industry just as falling interest-rates crimp income brokers earn on client cash. The announcement knocked $13 billion in combined value off the stocks of Schwab, TD Ameritrade and E*Trade Financial Corp., the smallest of the three main players.

TD Ameritrade quickly followed suit in cutting online trading commissions to zero, which the broker acknowledged would lower its quarterly revenue by about 15%. The moves prompted speculation they would spark a new wave of consolidation among electronic brokers. A merger could help defend the companies against the onslaught, affording opportunities to cut costs and improve profitability.

But the merger is likely to receive scrutiny from regulators given the firms' dominant positions in the industry and their direct contact with individual investors. They can point to new challengers such as Robinhood Markets Inc., a startup that has amassed about six million users by offering free stock trades, and an explosion of robo advisers that offer low-cost advice and exchange-traded funds.

TD Ameritrade and Schwab shares surged Thursday on news of the potential deal, which was reported by Fox Business Network and CNBC. TD Ameritrade stock jumped 17% to $48.38 while Schwab shares surged 7.3% to $48.03.

Once upstarts, the online brokers now command trillions of dollars in client assets from millions of customers attracted by lower fees and individual brokers who have defected from big Wall Street firms along with their clients' money.

The firms have also been helped by the long bull run in stocks following the financial crisis, which has helped them draw in aging baby boomers and do-it-yourself investors with swelled account balances.

Schwab, a pioneer in free online trades, now has some $3.85 trillion in client assets and 12.2 million active brokerage accounts. That dwarfs the client balances held by its Wall Street rivals including the U.S. retail-brokerage units of Bank of America, Morgan Stanley and UBS Group AG.

Schwab's reach now stretches beyond its brokerage roots, spanning banking, financial-advisory and custodial services. Earlier this year, it agreed to buy brokerage and wealth-management operations from insurer USAA for $1.8 billion, a move that pushes it further into the coveted business of financial advice. After rallying Thursday, Schwab's market value stands at about $62 billion.

Schwab got its start in 1963 as an investing newsletter before moving into the brokerage business and opening branches that offered client seminars. The discount-brokerage industry grew rapidly after the Securities and Exchange Commission deregulated broker commissions in 1975. That paved the way for upstarts like Schwab, unburdened with heavy overhead, to offer clients services for less.

The business boomed in the late 1990s as technology stocks soared and individuals flocked online to buy stocks on their own for a fraction of what traditional brokers had charged them.

TD Ameritrade was born of a 2005 merger between Ameritrade Holding Corp. and Toronto-Dominion Bank's TD Waterhouse. The Canadian bank still owns a roughly 40% stake in TD Ameritrade, which says it provides investing and trading services for 11 million client accounts with a total of more than $1 trillion in assets, as well as custodial services for more than 6,000 independent registered investment advisers.

Justin Baer and Liz Hoffman contributed to this article.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com and Christina Rexrode at christina.rexrode@wsj.com

 

(END) Dow Jones Newswires

November 22, 2019 02:47 ET (07:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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