Broken Brokers Merge to Mend
In yesterday’s financial markets, only a few investors moved millions of dollars. Today, millions of investors move only a few dollars. The pendulum has swung, and three brokerage stocks went wild yesterday as a result!
Modern discount stock brokers like Robinhood have democratized finance with zero-commission trades. Prior 1% platform fees never sounded like much to run from, but they were actually 10% taxes on investors’ profits, turning 10% annual gains into 9% annual gains.
A migration away from legacy brokers like TD Ameritrade, Charles Schwab, and E*Trade, is therefore unsurprising. Differentiated only by the fanfare of full-service features, all three have been sitting on their hands. Their industry has been disrupted, business models need reshaping, but no broker wants to let go of the easy money. It took Schwab reluctantly dropping commissions to zero last month before a frantic price war kicked off!
Analysts believe that unless they work together to defeat their common discount brokerage enemy, all will be left behind. That means mergers! In the rumor mill yesterday, a possible $26-billion-dollar bid by Charles Schwab for TD Ameritrade. Promising major cost savings, it’s a deal that “would make a lot of sense for both companies,” according to industry insider Bill Cuppuzi, and investors reveled in the gossip. TD Ameritrade’s stock shot up 20% as the target company, and even Schwab’s shares rose 7%.
But what about E*Trade? At risk of being the third wheel without a merging partner of its own, shares fell 10%! Unless the government steps in, E*Trade will be forced to go it alone and hope Charles Schwab’s risk doesn’t pay off. Nail-biting times for some!