Published: Wed, November 27, 2019
Markets | By Otis Pena

This stock trade isn’t free: Schwab scoops up rival for $26B

This stock trade isn’t free: Schwab scoops up rival for $26B

The Charles Schwab Corp. has agreed to buy TD Ameritrade Holding an all-stock deal valued at roughly $26 billion. Smaller brokerages like E*Trade will have to contend with a much more formidable competitor. TD Ameritrade said Monday it would suspend its CEO search.

"Schwab's announcement solidifies the notion that Westlake is in fact the financial hub of DFW and perhaps the entire country". Its voting stake will be limited to 9.9%, with the rest of its position in a non-voting class of stock. "Post-closing, The Toronto-Dominion Bank, which now holds approximately 43% of TD Ameritrade's common stock, will have an estimated aggregate ownership position of approximately 13% in the combined company, with other TD Ameritrade stockholders and existing Schwab stockholders holding approximately 18% and 69%, respectively". Schwab had $3.85 trillion in total client assets at the start of the month, while TD Ameritrade had $1.3 trillion at the end of September.

Bettinger downplayed the potential antitrust risks of the combination.

"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".

"We will definitely see more consolidation in the industry".

Last month, Schwab became the first major brokerage to eliminate commissions, a move followed by others including Fidelity Investments, E-Trade Financial Corp and TD Ameritrade. "We can help Schwab be successful and take their business to the next level as they compete nationally and internationally".

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"Schwab is aiming to solidify its place in the established order of the brokerage world as the industry faces a challenge: making more money without charging steep fees to customers managing their wealth", The New York Times said.

TD Ameritrade has relied more on commissions than some competitors, drawing 36 percent of its net revenue from commissions in 2018, compared to 7 percent at Schwab. Founder Charles Schwab himself hinted back in May that he was "not sure" that the company would maintain its headquarters in SF for the long haul. "You just have to have that scale and volume".

"Registered investment advisers, or RIAs, rely on brokerages ... to execute trades, hold clients' assets and perform related services such as record-keeping, a business known as custody", a Wall Street Journal report said Monday. That may give authorities pause, Keefe, Bruyette & Woods analyst Kyle Voigt wrote Thursday.

Their integration could yield Schwab a long-term increase of more than 25% per share, Voigt told The Associated Press.

Stephen Boyle, CTO at Ameritrade, says that the partnership is a strategic decision that will enable his firm to earn even more profits and concentrate efforts on making millions of the US based individual investors even richer at no cost.

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