The United States stock brokerage behemoth is in talks to acquire TD Ameritrade that will undoubtedly leverage its position in the disruptive discount brokerage market and create a combined $5 Trillion in assets. According to FT, the deal is to be valued at $26 billion.
Charles Schwab’s decision to buy the Nebraska based firm comes after the brutal market war that is insisting the companies to mover over zero commission which is resulting in enormous losses. However, it is one of the first brokering firms to eliminate the commission. TD Ameritrade also has slashed its commission to zero.
Walter Bettinger, Chief Executive of Charles Schwab is expected to run the combined company. While TD Ameritrade Chief Executive Tim Hockey had announced in summer that he relinquish from the position in February 2020. The founder and Chairman of Charles Schwab told last month that consolidation in this sector is a “logical conclusion” to survive.
The massive disruption is a boon for consumers but has plunged shares of the leading players aggressively. A race to cut down the costs has erupted due to the low-interest rates which have hampered brokers’ profits. In addition, passive investing with the help of asset managers such as Fidelity and Vanguard has urged brokerage firms to settle for zero commissions.
In terms of market dominance, Charles Schwab has a market capitalization of $57.5 billion and TD Ameritrade has a $22.4 billion market cap. The later company’s market cap vanished by 30% after the day Schwab announced to eliminate commissions. After the deal was reported by CBNC, Charles Schwab shares surged by 11% while TD Ameritrade gained 25% in share market.
If the deal is completed between the two firms, it may draw regulatory hurdles over anti-competitive practices. The deal may turn out as a nightmare for smaller competitors such as Robinhood, Interactive Brokers, and Trade Station.