Charles Schwab In Talks To Buy TD Ameritrade for $26bln.

Charles Schwab In Talks To Buy TD Ameritrade for $26bln.
November 22, 2019

 

The Charles Schwab Corporation (NYSE: SCHW) is negotiating the acquisition of the cryptocurrency-friendly TD Ameritrade Holding Corporation (Nasdaq: AMTD) in a deal valued at $26 billion. Shares of TD Ameritrade jumped over 16.92% or $7 to end Thursday’s trading at $48.38. Similarly, Schwab’s shares skyrocketed 7.33% or $3.28 to close at $48.03. The broking industry is undergoing massive disruption, and a likely deal between the two industry behemoths will result in the consolidation of the industry. Discount brokers Schwab and TD Ameritrade are the two largest publicly traded brokerage firms. While Schwab has a market cap of $61.58 billion, Ameritrade is valued at $26.205 billion.

The acquisition of TD Ameritrade by rival brokerage firm Charles Schwab is expected to result in the formation of a giant enterprise with over $5 trillion worth of assets under management.  Specifically, Schwab and TD Ameritrade have $3.8 trillion and $1.30 trillion assets under management. Notably, TD Ameritrade facilitates Bitcoin futures trading through derivatives exchange behemoth CME Group. TD Ameritrade also has a stake in cryptocurrency exchange ErisX.

Of late, all major brokerages have announced zero-fee plans, causing a significant industry disruption. In fact, Schwab was the first top-line brokerage firm to take such an initiative, eliminating fees in the first week of October. TD Ameritrade and Fidelity followed suit, without much of a delay.

In a note to clients, Mike Mayo, senior analyst at Wells Fargo commented on the likely merger as follows: “This would create a Goliath in Wealth Management.”

Schwab CEO Walter Bettinger will be heading the merged entity, according to unnamed sources. In July, TD Ameritrade CEO and President Tim Hockey announced that he would step down in February 2020.

Last month, Schwab’s founder and Chairman Charles Schwab stated that his firm is looking for a suitable brokerage firm to acquire. Schwab said, “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.”  

In 2013, Robinhood, a Silicon Valley start-up, started offering stock trading for free. Vanguard Group took notice of it and slashed fees on trading of exchange-traded funds. JP Morgan jumped on the bandwagon by launching a free trading app. Similarly, Interactive Brokers unveiled a free of charge product called IBKR Lite.

Devin Ryan, a financial analyst at JMP Securities, believes that further consolidations are possible in the industry. Ryan also pointed out that customers will benefit from the industry consolidation. “Consolidation thus far has been good and I think that will probably continue to be the case here. The key thing is what does the consumer get out of this. Ultimately the consumer’s been treated very well with lower commission pricing, their getting paid more on a lot of different parts of the platform.”

The shares of Schwab came under selling pressure after the brokerage firm introduced commission-free plans as investors were concerned about possible loss of revenue in the form of commissions. According to the previous quarterly report, the brokerage firm had generated revenues of between $90 million and $100 million. Investors felt that loss of income would put pressure on margins and overall performance of the company.

However, the company surprised investors by posting strong quarterly earnings last month, reflecting record-high client assets of $3.85 trillion and impressive customer additions. Last week, Schwab revealed 142,000 new account additions in October, an increase 31% on m-o-m basis and 7% from last year.

The news of the merger is expected to keep the shares of Charles Schwab bullish in the short-term.

The price chart provided below indicates strong support for the stock at 43 levels. The stock has closed above its 50-day moving average. Furthermore, the MACD indicator is also making new highs. Therefore, we can anticipate the stock to appreciate further in the short-term.

schw - technical analysis - 22nd Nov 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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