Schwab-TD Ameritrade in Focus
- Potential Rationale – These are two very similar businesses, so this would be an obvious scale transaction. In terms of mix, just under half (48%) of both SCHW and AMTD’s total assets are RIA custody assets. Voigt believes a key part of the potential strategic rationale for this deal would be SCHW being able to better monetize AMTD’s sweep deposits, as AMTD is only earning 154 bps in the BDA today. Additionally, SCHW has a larger asset management business, and may be able to better monetize AMTD’s customer assets over time.
- Accretion Math – KBW analysts’ preliminary accretion math (in an all equity transaction, 5% attrition, 60% cost saves of op ex) could equate to 10-15% EPS accretion for SCHW all else equal,, with this potentially migrating higher over a long period of time (>25%) if AMTD were able to eventually sweep all of AMTD’s deposits into its bank (and earn at least 200 bps spread instead of 150 bps today). Please see the note below for KBW’s preliminary accretion model (note: they use C2021 for SCHW and F2021 for AMTD).
- Anti-trust – Voigt thinks this deal may face somewhat significant anti-trust hurdles, depending on how the competitive market is viewed by relevant authorities. He believes SCHW has roughly 50% market share of total RIA custody assets (SCHW custodies $1.8 tln), and AMTD may have around 15-20% market share (custodies $0.6 tln). SCHW and AMTD are the number one and number three players in that business by size, with Fidelity being number two (possibly around 25% market share). With respect to self-directed retail, SCHW has $2.0 in retail assets, and AMTD has $0.7 tln in assets. Other players in the space include ETFC ($0.4 tln in assets), and Fidelity (doesn’t disclose self-directed retail assets, but Voigt thinks could be over $3.0 tln). There are other players in this space as well, which would include private competitors and larger bank brokers (BAML and JPM).
- Bottom Line – Voigt expects ETFC could be down meaningfully, as AMTD and SCHW were the two most likely acquirers for that business, and believes ETFC was the most crowded long in the space, mostly on a takeout potential. The deal for SCHW and AMTD makes strong strategic sense and provides room for revenue and cost synergies, but a key focus for investors will be the potential for anti-trust hurdles in a transaction
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