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Portfolio > Asset Managers

Schwab-TD Ameritrade Deal to Close Oct. 6

By Janet Levaux

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Charles Schwab says the Federal Reserve Board has given the final approval of its $26 billion purchase of TD Ameritrade, and the deal should close on Oct. 6.

The two brokerage firms had a total of $6.1 trillion of client assets in August. In June, the combined assets handled by their registered investment advisor, or RIA, clients was $2.6 trillion — of which $1.9 trillion was at Schwab and $700 billion at TD Ameritrade.

(Related: How Long Will the ‘Massive’ Schwab-TD Ameritrade Tie-Up Take?)

Specifically, the Fed said Toronto-Dominion Bank (“TD Bank”) of Canada can acquire a minority, non-controlling interest in Schwab as part of the transaction.

The news comes four months after the Department of Justice cleared the deal and closed its review of antitrust concerns. Shareholders of both firms also gave their approval of the deal in early June.

“As all necessary approvals of the proposed acquisition have now been received, Schwab expects to close the transaction on Oct. 6, subject to the customary closing conditions set forth in the merger agreement,” it said in a statement late Wednesday.

The Fed released its statement on the deal at 5 p.m. Wednesday. Moments later, former TD Ameritrade Institutional executive Dani Fava tweeted: “It’s official – ⁦@TDAmeritrade has become ⁦@CharlesSchwab.” (Fava is now head of strategic development at Envestnet). 

The full integration of the two firms — which announced the transaction 10 months ago — should take 18 to 36 months to complete after the deal officially closes. This means the technology tie-up and related efforts won’t be done until April 2022 at the earliest and by October 2023 at the latest.

Until then, Schwab and TD Ameritrade will operate as separate businesses.

(See: Timeline of the Schwab-TD Ameritrade Deal)

“We are very pleased with the Federal Reserve’s actions, which allow us to finalize our planned acquisition of TD Ameritrade,” explained Schwab President and CEO Walt Bettinger, in a press release.

“We are now focused on taking the last steps needed to close the transaction so that we can begin the important work of becoming one company and realizing the full potential of this combination on behalf of our clients,” Bettinger added.

Details of the Deal

TD Bank is selling its 43% interest in TD Ameritrade to Schwab and acquiring 9.9% of Schwab’s voting common and some 3.7% non-voting common shares in the transaction.

Upon completion of the merger, TD Bank should control total U.S. deposits of about $348.8 billion, or 2.1% of the total deposits of insured depository institutions in the United States, according to the Fed.

In its decision, the Fed said that given the size of the two firms, the large number of internet-based rivals and the “diffuse geographic nature of TD [Bank]’s and Schwab’s internet deposits, the proposed transaction would not result in a material increase in concentration in any single market … .”

As part of its review, the Fed assessed the post-merger links between TD Ameritrade and Schwab, including the equity investment, directors serving on several boards (so-called director interlocks) and a large deposit sweep arrangement.

It concluded that “the set of linkages presented … would not significantly increase risks to financial stability.”

Integration Plans

In early August, Schwab said TD Ameritrade’s thinkorswim and thinkpipes trading platforms, educational resources and tools would be part of what it offered clients of independent advisors and other investors.

It also plans to keep TD Ameritrade Institutional’s portfolio rebalancing solution, iRebal, for RIAs.

Schwab’s plan is “definitely a win for TDA advisors, as those assets were truly differentiated from TDA’s superior technology offering vs. Schwab,” Tim Welsh, head of the consultancy Nexus Strategy, told ThinkAdvisor when the news was announced.

“However, as history has shown, nothing ever goes smoothly in a technology integration, so the disruption from the massive merger for advisors will be real,” he noted. “Will they stick around and muddle through it? That is the $26 billion question.”

Meanwhile, Joel Bruckenstein, head of Technology Tools for Today, called Schwab’s plan a “good move” in a tweet. The thinkpipes platform offers advisors features that include real-time charting and efficient trading and allocation.

But Gavin Spitzner, president of Wealth Consulting Partners, differed in his views of the tech development. He called Schwab’s announcement “non-news news in the sense that I can’t imagine Schwab saying anything other than they’re going to maintain thinkorswim and other legacy TDA solutions.”

Schwab seemed to be “simply saying they’re retaining both legacy trading platforms — thinkorswim and Schwab’s StreetSmartEdge — and they’ll figure out how to integrate later,” Spitzner explained.

“They’re not going to tell either set of existing users they’re shutting down their platform. Instead, this freezes the market and kicks the can down the road, which is exactly what I would do,” he added.

“The tougher work is ahead because, of course, long term it doesn’t make sense to maintain two separate, but similar, capabilities,” Spitzner said.

In a statement at the time, Schwab stated: “We are committed to leveraging material advantages in TD Ameritrade’s platforms when doing so enables us to deliver a differentiated experience to all of our clients. That commitment drove this decision.”

(Related: Morgan Stanley to Complete E-Trade Purchase Oct. 2)

Schwab vs. TD Ameritrade, by the Numbers

Net revenue for TD Ameritrade grew 6% from a year ago to about $1.6 billion in the period ending June 30. Schwab’s sales fell 9% in the same quarter to roughly $2.5 billion.

Net income for TD Ameritrade was $569 million, up 3% from a year ago, vs. $742 million for Schwab, down 21% year over year.

Total assets at TD Ameritrade were about $1.5 trillion on June 30, compared with some $4.1 trillion at Schwab.

TD Ameritrade’s advisory assets — 47% of total assets — total roughly $700 billion as of June 30, while Schwab’s advisory assets — 46% of total assets — were close to $1.9 trillion.

Net new assets at TD Ameritrade were $32.8 billion in the quarter ending June 30, with $12.8 billion in the RIA channel and $20 billion from retail, or DIY, investors. Schwab’s net new assets in Q2 were $24.7 billion for the RIA business and $22 billion for DIY investors.

Early Thursday, shares of Schwab (trading with the ticker SCHW) and TD Ameritrade (AMTD) both traded up about 3%. Year to date, Schwab’s shares are down about 22%, while TD Ameritrade’s have weakened roughly 19%; during the past nine months, the S&P 500 has risen 4.5%.

— Related on ThinkAdvisor:

Janet Levaux

@Think_JanetL

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