Charles Schwab is nearing an agreement to acquire US online brokerage TD Ameritrade for more than $25bn, according to people briefed on the matter, as a brutal price war forces the industry to consolidate.
The combination between Schwab and TD Ameritrade, which could be announced as early as Thursday, would be the most striking response so far to the forces disrupting the brokerage industry.
Walter Bettinger, chief executive of Schwab, is expected to run the combined company, one of the people added. TD Ameritrade’s chief executive Tim Hockey announced in the summer he would be stepping down in February 2020.
“This would create a Goliath in wealth management,” noted Mike Mayo, a Wells Fargo analyst.
Online brokers, including Schwab and TD Ameritrade, have slashed trading fees to zero as they face insurgents such as stock-trading app Robinhood, which have chipped away at their dominance.
Charles Schwab, the founder and chairman of the eponymous group, told CNBC last month that consolidation in the brokering sector was a “logical conclusion” for an industry that had been struggling to compete against challengers.
Analysts have said in recent months that the shift towards zero trading commissions would ultimately force brokers to consolidate.
The latest round of cost-cutting over the past two months saw shares of online brokers, including TD Ameritrade, plunge. The race to cut fees for trading shares comes just as the industry grapples with the pernicious effect of low interest rates, which cut the profits that brokers make from money sitting in customers’ accounts.
The business of US equity trading has also been upended by the growth of passive investing. Asset managers Fidelity and Vanguard have increased the number of exchange traded funds that investors can buy without paying a commission.
The battle for US retail investors has intensified as the record Wall Street bull market shows little sign of slowing. The S&P 500 has gained 24 per cent this year.
On Thursday, shares of Schwab climbed 11 per cent in pre-market trading to $49.69, while TD Ameritrade gained almost 25 per cent to $51.61 after CNBC first reported on the deal.
Schwab, which is already the biggest online brokerage with more than 10m active accounts, has pushed into asset management and doubled down on offering investment advice as fees from trading shares bleed away.
A combination of Schwab and TD Ameritrade would create a behemoth with $5tn in assets.
The companies could not be reached for comment.