Schwab’s last month eliminated commissions for U.S. stock trading, forcing other brokerages to follow suit and sweeping away an important revenue stream. Analysts speculated that online brokerages might have to cut deals to survive the increased industry pressure.
TD Ameritrade has relied more on commissions than some competitors, drawing 36% of its net revenue from commissions in 2018, compared to 7% at Schwab.
Founder Charles Schwab hinted he was open to dealmaking in an interview with Bloomberg Radio in October.
“I don’t know whether we’ll be successful in that pursuit, but in the industry you’re going to see more consolidation, more firms getting together,” he said. “You just have to have that scale and volume.”
If the deal goes through, the combined company will have unparalleled clout as top custody service providers to independent financial advisers. That may give authorities pause, Keefe, Bruyette & Woods analyst Kyle Voigt wrote Thursday. He estimates Schwab has about a 50% market share of registered investment adviser custody assets, while TD Ameritrade may have as much as 20%.
The acquisition comes after TD Ameritrade announced in July that CEO Tim Hockey would leave early next year. Hockey denied at the time that his departure had anything to do with a potential deal.
Credit Suisse Securities was Schwab’s financial adviser. PJT Partners and Sander O’Neill Partners were financial advisers to TD Ameritrade’s board. Davis Polk & Wardwell and Wachtell Lipton Rosen & Katz were legal advisers to Schwab and TD Ameritrade, respectively.
This article was provided by Bloomberg News.