UPDATE: Schwab To Buy Windward For $150 Million, To Broaden ETF Push
August 30 2010 - 11:09AM
Dow Jones News
Charles Schwab Corp. (SCHW) announced its first acquisition of a
money manager in seven years, agreeing to buy Windward Investment
Management Inc. to broaden its push into the rapidly growing
exchange-traded fund market.
Schwab, the largest discount broker by market capitalization,
said it would pay $150 million in cash and stock to purchase
Windward, an investment advisory firm which it has provided
custodial services to for the last 15 years.
For Schwab, the deal is an expansion of its plan to go on
offense in late 2009. Like its peers, the San Francisco company has
been hurt by low interest rates, which forced it to waive fees on
some its money market funds so clients' yields wouldn't turn
negative.
Since November, Schwab announced a push into ETFs and joined
forces with J.P. Morgan Chase & Co. (JPM) to give its clients
access to the banking giant's fixed-income securities. As of July
30, Schwab had $1.4 billion in eight proprietary ETFs and has
launched three additional ones this month.
In an interview with Dow Jones Newswires, Bernie Clark,
executive vice president for Charles Schwab Advisor Services, said,
"We have seen advisers really embrace [ETFs] and the [Windward
deal] gives us access to three unique strategies in an area that we
think will be more broadly adopted."
ETFs, which trade like stocks, have gained in popularity over
the past year as the investment tools track a particular index,
sector, industry or even commodity.
Specific financial details of the deal weren't disclosed. Schwab
said it expects the acquisition to add "modestly" to the bottom
line during the first 12 months after the deal closes.
Boston-based Windward managed about $3.9 billion as of July 31
in three portfolios primarily made up of ETF securities. Schwab
said Monday it had seen a 38% jump in ETF usage among its clients
from June 2009 to June 2010, and it noted that a research firm
estimates that ETFs will see a compound annual growth rate of 23%
between 2010 and 2014.
When the deal closes, Windward's ETF-based investment portfolios
will be available to individual investors through the Schwab
platform.
Pursuing acquisitions is something of a rarity for Schwab, which
is known as more of a strategic acquirer than some of its main
rivals and it has been mostly focused on organic growth in recent
years. The company last purchased a money manager in 2003, when it
acquired State Street Corp.'s (STT) private asset management
business. At that time, Schwab made the deal to enhance its
ultra-high-net-worth business--U.S. Trust Corp.--which it later
sold to Bank of America Corp. (BAC).
"When we see an opportunity--and in this particular case, we
think it enhances our retail and advisory offering--then that
becomes something we go after," Clark said.
Shares of Schwab recently traded down 8 cents at $13.14, after
falling to a 52-week low of $13.03 on Monday. The stock has fallen
30% so far this year.
-By Brett Philbin, Dow Jones Newswires; 212-416-2173;
brett.philbin@dowjones.com
(Nathan Becker contributed to this report.)
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