Charles Schwab Reportedly Eying Purchase of TD Ameritrade
The discount brokerage industry as we know it is rapidly changing. Not only have FinTechs like Robinhood and others disrupted the market but, more recently, several well-established firms made some major changes of their own. Now another big evolution could be in the works as CNBC reports that Charles Schwab is in talks to purchase TD Ameritrade.
If such a merger were to occur, the result would be a brokerage with more than $5 trillion in assets ($3.8 trillion from Schwab and $1.3 trillion from Ameritrade). Moreover the duo are the two largest publically traded discount brokerages with market caps of $57.5 and $22.4 billion respectively. As a result, according to the Financial Times, the purchase is said to cost Charles Schwab $25 billion. Meanwhile CNBC says an official announcement about the deal could arrive as early as this afternoon.
As massive as a deal like this would be, it’s not exactly out of the blue. In fact last month Charles Schwab himself told CNBC that he saw the consolidation of the brokerage industry as the “logical conclusion that will occur.” Asked specifically if his firm had considered any possible acquisitions, Schwab stated, “Certainty at the right valuation, we would do it, but we are really strong and very independent the way we do things, and so if it happens that it’s appropriate for our shareholders we will do it.”
News of the potential merger follows fairly closely on the heels of major developments in a brokerage price war. Last month, Schwab announced it was cutting commissions on trades to $0. Soon after this, several other brokerages — including TD Ameritrade — unveiled similar shakeups. Of course, while this new era may have been welcomed by customers, Wall Street was not too pleased as stocks for many of those involved fell shortly after the announcements. Notably, however, Schwab says that it’s seen 142,000 new brokerage accounts created since last month, marking a 31% improvement over the number of new accounts in September.
Given the size of a merged Charles Schwab and TD Ameritrade, even if a deal is announced this week, it may be a while before regulators allow it to close (if they allow it at all). In the meantime, we can expect a variety of reactions from smaller brokerages — including the possibilities of them also consolidating among themselves. While there’s still much that’s unclear at this point, one thing is certain: big changes are afoot in the brokerage industry.