(Photos: Bloomberg/Shutterstock; art by Chris Nicholls)
Charles Schwab announced it is buying rival TD Ameritrade for $26 billion in an all-stock transaction. It made the announcement early Monday, four days after reports that the two discount brokerage firms were in merger talks.
In addition, TD Ameritrade has suspended its CEO search and named CFO Stephen Boyle as interim president and CEO, replacing Tim Hockey. Several months ago, Hockey said he planned to leave the firm; he will act as an advisor to Boyle through Feb. 28, 2020.
"A new chapter for me…best of luck to my colleagues @TDAmeritrade," Hockey said on Twitter. "Life is like a bike trip. There are many twists and turns. The idea is to enjoy the ride…and as Einstein said, you only stay upright if you keep moving forward!"
The deal potentially unites more than 14,000 RIAs, some $5.1 trillion in investor and advisory assets, and 24 million accounts. The two firms' combined revenue is estimated at $17 billion with pre-tax profits of $8 billion.
Toronto-Dominion Bank, which now owns some 43 percent of TD Ameritrade common stock, is expected to own roughly 13 percent of the new company; its voting stake will be capped at 9.9 percent. Other TD Ameritrade stockholders and current Schwab shareholders should then own about 18 percent and 69 percent, respectively.
Once approved — the deal faces antitrust and other hurdles — the new entity aims to "capitalize on the unique opportunity to build a firm with the soul of a challenger and the resources of a large financial services institution," Schwab President and CEO Walt Bettinger said in a statement on Monday.
As for RIAs, "I see two camps forming," said Gavin Spitzner, president of Wealth Consulting Partners. "One, for those now with TD Ameritrade expressly not to be with Schwab, will use this as a reason to migrate away to an established firm or potentially an upstart like Altruist."
The second camp could see the combination as having extra resources to invest in innovation and "doesn't care about the competitive angle of their custodian competing alongside them in the wealth business and might grumble but will stay," Spitzner explained. "Most interesting will be the ripple effects and who acquires or merges with who coming out of this."
As to how the deal came to be — following on the heels of Schwab's and TD Ameritrade's move to zero commissions on trades — George Papadopoulas, an RIA, said on Twitter: "Lets face it, Schwab is a hell of a competitor! They managed to flat out corner TD Ameritrade whose executive team could not manage to transition the company away from relying so much on trading commissions. And then they went for the kill!"
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Janet Levaux
Editor-in-Chief Janet Levaux has covered the financial markets since 1991, with a focus on financial advisors since 2005. After graduating from Yale and the Johns Hopkins School of Advanced International Studies (SAIS), where she studied global economics, Janet worked as a freelance financial and business writer in Japan, and then as a reporter and editor for Investor's Business Daily and the Bay Area News Group in California. She earned an MBA in 2007 and since then has helped lead key ThinkAdvisor projects like its Neal-Award winning reporting on Ken Fisher, Luminaries awards program and Women in Wealth newsletter.
