The Charles Schwab Corporation and TD Ameritrade have entered into a deal for Schwab to acquire TD Ameritrade. Fidelity has already commented on the move.
Both investment firms TD Ameritrade and Charles Schwab started their journey 40 years ago. They made a brave move to compete with traditional Wall Street brokerage firms and won. Now, Schwab is buying Ameritrade for $26 billion in order to continue their aggressive expanding campaign. Back in 1975, many millions of investors took the chance to join the revolution that started off thanks to these ventures. The companies both operate a stack of $5 trillion in user assets in 2019., generating 26 billion in annual profits, and controlling 20% of all the investment market.
The deal will open a new page in the history of the companies. TD will add 12 million client accounts to another 12 million who already invest with Schwab. Walt Bettinger, Schwab CEO, admits that he was looking at TD for a long time, and the firm is giving him inspiration. After the deal, both companies will save approximately $2 billion on cutting the operational costs.
Robinhood App Makes Wall Street Firms Cut Out Fees
The deal is on the go after both firms declared they would disable commissions following the pace set by the popular mobile investing app Robinhood. Indeed, in early October, the commissions went to zero. Several analysts wonder how they will compensate losses after such a move. However, many other Wall Street firms also cut commissions to be able o safely stay on the market. The move can lead to losing a significant part of the usual profits, but the giants don’t have much choice because many novice investors tend to pick bots and mobile apps up to receive trading advice.
According to Schwab, Ameritrade stockholders will get 1.0837 of the Schwab shares per every TD share. Per Walt Bettinger:
“Together, we share a passion for breaking down barriers for investors and advisors through a combination of low cost, great service, and technology. ”
Stephen Boyle, CTO at Ameritrade, says that the partnership is a strategic decision that will enable his firm to earn even more profits and concentrate efforts on making millions of the U.S. based individual investors even richer at no cost. Per Mr. Boyle:
“Partnering with Schwab on this transformative opportunity makes the right strategic and financial sense for TD Ameritrade”
Fidelity Takes Opportunity to Attack the Schwab Deals
Fidelity is a financial giant leading a war against Schwab. Their Personal Investing President, Kathy Murphy, gave some interesting quotes to CNN Business and Barrons journalists. Specifically, she thinks that the customers will have to pay more to Schwabb to make an order:
“Acquisitions of this size can be long, complex, and unsettling, so while our public competitors are busy working on a massive integration of technologies and services, Fidelity will remain focused on investing in our platform and delivering an exceptional client experience, including unmatched value”
Also, the Barrons outlet journalists reached out for a comment, and Kathy responds in somewhat Jokerish style. She is sure that the company:
“…Will likely be doubling down on revenue practices that directly disadvantage investors, including paying extremely low cash sweep rates and taking significant payment for order flow.”
Whether the picture seems so dark as she says – only time will tell, as financial sharks of that level barely make decisions if they don’t have any plans of compensating possible losses.
Time and Regulators Need to Approve the Deal
In the world of cryptocurrencies, everything works and moves very fast, except for confirmations for a low-fee Bitcoin transaction, maybe.
But in the traditional finance world, the settlement of such a character will require attention from the government officials. Fiscal agents will check everything in the next 18 to 36 months. After that, the deal is finalized. In the meantime, Schwab’s management could continue buying all the stocks of other investment firms. Some market analysts point that E-Trade investment company could follow TD Ameritrade and unite as one with the two successful giants of Wall Street.