Ameritrade buyout a positive for TD Bank: rating agency

The discount brokerage mega-merger of Charles Schwab Corp. buying TD Ameritrade Holding Corp. will fundamentally shake up the retail brokerage industry — and it’s a positive for TD Bank, says DBRS, Inc.

In a research note, the Toronto-based rating agency said that it sees Schwab’s US$26.0 billion buyout of TD Ameritrade as “transformative” for the industry.

DBRS noted that the deal marries the two largest publicly traded U.S. discount brokers, creating an industry giant that will have approximately US$5.0 trillion in client assets and 24 million accounts.

The deal is expected to close in the second half of 2020, subject to shareholder and regulatory approvals, along with other closing conditions.

TD Bank, which controls 43% of TD Ameritrade, will own approximately 13.4% of Schwab after the deal and will have two seats on the firm’s board.

“The bank expects to recognize a sizeable C$4.0 billion to C$6.0 billion re-evaluation gain at closing, creating additional financial flexibility,” said DBRS, which noted that its ratings on the bank aren’t affected by the deal.

“TD keeps a seat at the table with its ownership stake, enabling it to realize synergies from the transaction, which are expected to be modestly accretive following the completion of the integration,” DBRS said.

Additionally, Schwab and TD have renegotiated an account servicing deal, which DBRS said maintains “an important source of deposits and servicing fees at the bank.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.