updated 2:28 PM CEST, May 24, 2023

Charles Schwab reported 'near deal for rival TD Ameritrade'

Charles Schwab, the San Francisco-based, NYSE-listed financial services giant that was in the news recently after it announced certain cutbacks and changes to its services for some  of its American clients resident outside the U.S., is today reported by The Financial Times and other media outlets to be closing in on a US$26bn deal to acquire a smaller rival, TD Ameritrade.

The Financial Times report cites people "briefed on the talks" as its source of the news of the acquisition, although it also notes that talk of a deal was originally reported by CNBC. 

"The negotiations come as online brokers, including Schwab and TD Ameritrade, have slashed trading fees to zero in the face of insurgents such as [the] stock-trading app Robinhood, which have chipped away at their dominance," the FT report says. 

The growth of passive investing has also hit the brokerage business, the FT report goes on to note, with passive specialist managers like Fidelity and Vanguard having "increased the number of ETFs that investors can buy without paying a commission", which is where the brokerages make their money.

It wasn't clear as this article was being published how, if at all, the acquisition would directly affect Charles Schwab's non-U.S.-resident clients.  In 2017, the Toronto-based TD Bank Group, which owns 43% of TD Ameritrade, completed the sale of a Luxembourg-based online investment platform and trading business it owned – known at various times as TD Direct Investing International and Internaxx – to Interactive Investor Ltd, a Manchester-based trading and investment platform (unrelated to Interactive Brokers). 

Charles Schwab was founded in 1971 by Charles R. Schwab, who remains its chairman, and is already the world's largest online brokerage, with more than 10 million active accounts. Its shares are traded on the New York Stock Exchange, where it is a component of the S&P 500 index, and it currently looks after around US$3.7trn on behalf of its investment clients.

As the brokerage business is becoming less profitable, it has been looking to move more into other areas of financial services, such as investment advice provision. 

In September it revealed it would close its Singapore office, opened in 2017, by the end of this year, a month after it announced it was also going to discontinue a business in Australia it had launched there in 2017. 

Changes to Schwab's Europe biz 

As reported here earlier this month, Schwab has been reaching out to its clients in Europe to inform them that they must take certain actions with respect to their accounts before the end of the year, citing a "“change [in] its business model…mostly due to the UK’s decision to leave the EU”.

Those Schwab clients in Italy and France who don't custody their accounts through a U.S.-based adviser are being told they must “transfer your assets to another financial services firm as soon as possible” or close or sell their positions, while the rest may remain with Schwab if they are comfortable with the fact that their accounts will move to Charles Schwab & Co Inc., the firm's U.S. operation.

The company currently services its European clients out of its London offices, which it said will remain open.

In August, Schwab announced that after Sept. 19, Schwab clients resident in the EU would no longer be able to purchase U.S.-registered exchange-traded funds (ETFs) and exchange-traded notes (ETNs), due to complications resulting from what is known as the Markets in Financial Instruments Directive II (MiFID II), a 2018 update of an earlier EU directive that created a framework to facilitate the cross-border trade of investment services throughout the European Economic Area.

Based in Omaha, Nebraska, TD Ameritrade is 43% owned by Canada's Toronto-Dominion Bank. Its shares are listed on the NASDAQ index. 

In pre-market trading on Thursday, the shares of both Charles Schwab and TD Ameritrade rose, suggesting market approval for the deal. 

Neither Charles Schwab nor TD Ameritrade immediately responded to requests for comment.