Charles Schwab and TD Soulmates

Two men shaking hands

Charles Schwab (SCHW) is buying TD Ameritrade for $26 Billion. With Schwab’s $3.85 Trillion in assets and TD Ameritrade’s $1.3 trillion, a marriage would wind up with some $5 Trillion in assets.

Charles Schwab History

In 1963 Charles Schwab and two other partners launch an investment advisory letter. They incorporated in 1971 as First Commander Corporation to conduct a conventional broker-dealer securities business. In 1975 Charles seized the opportunity to create a new kind of discount brokerage for stock and option trading.

Merger Details

The deal between Schwab and Ameritrade will create a behemoth for stock option trading with more than $5 Trillion in combined assets. Ameritrade could add more than 25% to Schwab earnings per share and eliminate 60% operating expenses.

Mergers & Acquisitions

Men's hands clapping a high-five

Charles Schwab drove the locomotive of speculation and news of corporate merger-mania, and has started to gain steam over the past weeks, including the merger between BB&T Corp and SunTrust Banks. Other speculative courtships include Goldman Sachs, Bank of America, Morgan Stanley, E-trade, Xerox/HP, and even Walgreens. Indications are that brokers are willing to pay up to grow their advisory business.

When startup RobinHood offered free stock trading, brokerages were scrambling to find ways to maintain profits and they moved to slash trading commissions to zero in September, 2019.

In July, 2019, Schwab announced plans to buy USAA for $1.8 Billion. That will make Schwab the exclusive brokerage firm to trade stock options for USAA’s 13-million active and retired military personnel and their families, adding $90 Billion in USAA client assets; roughly a 5% boost in Schwab assets.

Wall Street pegged E-Trade as the likely Schwab acquisition target. Broken hearted, E-Trade shares fell, leaving investors worried about its future. However, E-Trade still looks like an attractive acquisition target with a large deposits business. Its stock is down nearly 20% in the past 12 months, giving a buyer a major discount.

Barb’s Takeaway

The merger may face significant antitrust issues. Schwab, Ameritrade and Fidelity are the top three custodians Registered Investment Advisors (RIA). The three are also dominant players in the stock and option trading retail brokerage business. The acquisition will eliminate a major choice for customers among custodians.

After dropping commissions, Schwab’s stock was under pressure that the lost commission revenue would pressure margins; however the stock has recovered, and client assets reached a record high in the third quarter.

Are You a Bull or Bear ??

Date: November 22, 2019 – Stock: Charles Schwab – Share price closed @ $48.20

If you’re a Bullish Mom and think SCHW will go up, try the January 17, 2020 Expiration Date – CALL $48.00 Bid;  and $47.00 Ask strike prices.  Premium is .85¢(mid @53¢) debit to pay = Long Call Vertical Spread on

On the other hand, Mom, if you think SCHW is bearish and will go down, try the Expiration Date: January 17, 2020 – PUT $48.00- Ask;  and $47.00 Bid strike prices. Premium is 65¢(mid @40¢) debit to pay = Long Put Vertical Spread on

 Let’s empower all of us Moms and Dads to Face Down the Wall Street bull!

Let's keep in touch, Barb

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