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Business

Charles Schwab eyes purchase of TD Ameritrade: reports

By
Noah Manskar
Published Nov. 21, 2019
Updated Nov. 21, 2019, 9:33 p.m. ET

Charles Schwab is reportedly looking to make a blockbuster purchase of TD Ameritrade amid a fierce battle between online brokerages that has lowered trading commissions to zero in recent weeks.

Schwab, headquartered in San Francisco, will shell out a staggering $26 billion for Nebraska-based Ameritrade, Fox Business Network reported Thursday. The deal would unite the two largest publicly traded discount brokerages and give the combined company about $5 trillion in assets following several companies’ moves to scrap commissions for online trades.

“They’re gonna be like the Amazon or the Apple of mass market wealth management,” said Gary Wedbush, co-president of Wedbush Securities, a wealth management and investment banking firm.

The merger comes as online brokerage firms have dramatically slashed fees in an effort to attract new customers, raising questions about their revenue prospects.

Schwab shook up the brokerage industry early last month when it eliminated commissions for online trades of stocks, options and exchange-traded funds. TD Ameritrade, E*Trade and Fidelity Investments quickly followed suit.

The marriage could also be the work of an activist investor. A Wall Street source told The Post Wednesday, before news of the Schwab bid, that a major activist had taken an undisclosed position in TD Ameritrade and was planning to push for a sale.

Reports said the deal would be announced as soon as Thursday, but neither Charles Schwab nor TD Ameritrade immediately responded to requests for comment.

By killing trading fees, Schwab added 142,000 new brokerage accounts last month, 7 percent more than in October 2018, and its total client assets climbed to a record $3.85 trillion.

But the reported price of the Schwab-Ameritrade merger also reflects “the industry’s difficult revenue outlook,” according to Bloomberg Intelligence senior analyst David Ritter.

While other brokerages have also scrapped commission fees, the Schwab deal could raise suspicions among regulators given that it would come in the middle of a “price war,” according to antitrust law expert Tim Wu.

“The No. 1 concern you have with mergers is they wanna merge to raise prices or eliminate competition,” said Wu, a Columbia Law School professor. “And they’re in the midst of an intense competition, which has had an effect on their stock prices.”

But Schwab and Ameritrade — two players in a “seriously competitive” industry — were likely discussing a merger before the race to cut commissions, Wedbush said.

“I’m sure they were working on this for a long time,” Wedbush said. “The move to zero commissions and the price war probably erased any doubt in doing the deal.”

The merger news sent shares for both companies soaring. TD Ameritrade’s stock price jumped 25.5 percent to a high of $51.94, while Schwab’s was up 13.8 percent to a high of $50.97.

TD Ameritrade’s stock closed up 17 percent, to $48.38 a share, while Schwab ended the day 7.3 percent higher, to $48.03 a share.

Additional reporting by Josh Kosman.