Charles Schwab (NYSE: SCHW) is reportedly in talks to acquire TD Ameritrade (NASDAQ: AMTD), a source told CNBC on Thursday. The deal could be announced as early as Thursday.
The Financial Times reported that Schwab is expected to pay USD 25 Billion for TD Ameritrade.
Following the reports, TD Ameritrade’s stock soared by 21.1%, while Charles Schwab gained 7.7% on Thursday morning.
A deal between the two firms would create a combined company with more than USD 5 Trillion in assets, about USD 3.8 Trillion from Schwab and USD 1.3 Trillion from TD Ameritrade.
“This would create a Goliath in Wealth Management,” Wells Fargo senior analyst Mike Mayo said in a note to clients on Thursday.
The sources said that Schwab Chief Executive Officer Walter Bettinger has been designated to run the combined company. TD Ameritrade Chief Executive Officer and President Tim Hockey said in July he will be leaving the firm in February 2020.
Previously, Scwab’s Founder and Chairman Charles Schwab told CNBC last month that consolidation in the retail brokerage industry is a “logical conclusion that will occur.”
In particular, reports of a deal between the two brokerages is amid massive disruption ongoing in the industry. In recent months, major brokerage firms have decided to go to zero commission. Schwab was among the first to make the move, while its competitors Fidelity and TD Ameritrade shortly followed.
Brokerage firms have faced immense pressure to go to zero fees due rising popularity of start-up investment app Robinhood. Since then, Vanguard Group slashed fees on exchange-traded funds and J.P. Morgan Chase started its own free trading app. Similarly, Interactive Brokers announced a commission free product called IBKR Lite.
Schwab’s investors were worried that eliminating fees would pressure its margins, which resulted in USD 90 Million to USD 100 Million losses in quarterly revenue.
However, Schwab’s showed that its free trading has paid off as the Company added 142,000 new brokerage accounts in October, increasing by 31% month-over-month and 7% year-over-year.