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Thursday, October 01, 2020

Two Discount Brokerage Deals Near Their Finish Lines

Reported by Neil Anderson, Managing Editor

A pair of giant, publicly traded discount brokerages are about to be acquired, as expected: one by its prime rival, and the other by a Wall Street bank. Both deals started before the coronavirus crisis ramped up in the U.S., and both deals follow the elimination by many discount brokerages of trading commissions (for retail investors and, in many cases, RIAs) on ETFs, options, and stocks.

Walter William "Walt" Bettinger II
Charles Schwab & Co.
President, CEO
Yesterday Walt Bettinger, president and CEO of the Charles Schwab Corporation, and Steve Boyle, the interim president and CEO of TD Ameritrade Holding Corporation, both confirmed that San Franciso-based Schwab's purchase of Omaha-based TD has now cleared its final regulatory hurdle by receiving the blessing of the Federal Reserve. The deal is now officially expected to close next Tuesday, October 6, more than ten months after the duo unveiled it and four months after shareholders approved it. The deal also comes 45 years after TD Ameritrade (then just Ameritrade) was founded.

Meanwhile, also yesterday, James Gorman, chairman and CEO of Morgan Stanley, confirmed that his firm, too, had cleared the same final regulatory hurdle (Fed approval) for its planned acquisition of E*Trade Financial Corporation. That deal is now officially expected to close tomorrow, October 2, more than seven months after it was revealed and less than three months after shareholders approved it. The deal also comes 19 years after E*Trade was founded.

Integration of TD into Schwab is officially expected to take another 18 to 36 months, so the firms will keep operating separately, "business as usual," in the meantime. Yet the deal will eventually bring together two big online brokerages, fund supermarkets, and RIA custodians. On the Morgan Stanley side, the investment bank already has a giant wirehouse, and now it will have a big online brokerage and an RIA custody business (though on a different scale than those of Schwab, Fidelity, and TD).

For fundsters, as MFWire noted last November when the Schwab-TD deal was first unveiled, extra size and scale in these platforms may translate into tougher negotiations for those seeking distribution. It also provides the potential for greater scale in those distribution relationships. And that logic applies to the Morgan Stanley-E*Trade deal, too.

In both cases, the acquirers are also big proprietary asset managers, adding to the competition for asset managers who worked with the acquirees (whose platforms historically haven't been big on proprietary products). 

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