TD Ameritrade $4bil Purchase of Scottrade Not A Done Deal..Yet

td ameritrade-scottrade-brokerdealer

Broker-Dealer Consolidation Makes Sense, But TD Ameritrade Deal for Scottrade is Not A Done Deal..yet.

(Reuters) Oct 24-TD Ameritrade (AMTD.O) has agreed to buy Scottrade for $2.7 billion in a deal that would bring together two of the biggest U.S. discount brokerages, but is expected to face scrutiny from regulators. TD Ameritrade, the biggest U.S. discount brokerage by trade executions, said it would end up paying $2.7 billion for Scottrade’s brokerage business after the sale of Scottrade Bank to Toronto-Dominion Bank’s U.S. banking unit for $1.3 billion.

It is the latest in a wave of consolidation in an industry which has been grappling with intense competition and weak trading volumes as a result of small investors being drawn towards cheaper investment products that track major indexes.

E*Trade Financial Corp (ETFC.O), another discount broker, said in July that it would buy online brokerage OptionsHouse for $725 million, while Ally Financial Inc (ALLY.N) purchased TradeKing Group for about $275 million a month earlier.

In a connected deal, Toronto-Dominion Bank (TD.TO), TD Ameritrade’s biggest shareholder, said on Monday it had agreed to buy Scottrade’s banking business for $1.3 billion as it continues to ramp up its expansion in the United States.

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td ameritrade-scottrade-analysisTD Ameritrade’s acquisition of Scottrade combines two of the United States’ “big five brokerages”, the others being Charles Schwab, Fidelity Investments and E-Trade, and would leave only four major brokers operating in the marketplace.

“I think that the authorities in the United States are unlikely to let this pass without a pretty close look,” said John Briggs, an antitrust attorney with the law firm Axinn, Veltrop & Harkrider. “I think the transaction deserves scrutiny and will get scrutiny.”

TD Ameritrade’s CEO Tim Hockey said he believed regulators would look at the deal “fairly.”

“I still think this is a considerably competitive marketplace, that’s for sure. There are lots of opportunities for additional competitors to get into our space and continue to drive price competition,” he said.

The deal will produce a combined business with around 10 million client accounts and $1 trillion in assets, which will execute around 600,000 trades per day.

The purchase prices comprises $1.7 billion in cash and $1 billion in new shares. It will net a windfall for Scottrade’s co-founder and Chief Executive Rodger Riney, who set the company up in 1980. Riney, who said last year he was being treated for cancer, will join the TD Ameritrade board and also become TD Ameritrade’s fourth biggest shareholder.

TD Ameritrade, 42-percent owned by Toronto Dominion Bank, said it expected annual cost savings of $450 million as a result of the deal, with another $300 million of potential savings identified in the longer term.

As part of those plans, Hockey said around 25 percent of the combined business’s 600 branches will be closed. TD Ameritrade currently has 100 branches while Scottrade has 500. Hockey said in the interview the combined workforce of 10,000 will be reduced by about 20 percent.


For the full story from Reuters, click here

TD Ameritrade $2.7bil Purchase of Scottrade Not A Done Deal..Yet


Morgan Stanley, Scottrade Settle Insufficient Supervisory Charges


The Financial Industry Regulatory Authority said Monday that it fined Morgan Stanley Smith Barney LLC and Scottrade Inc. a combined $950,000 for insufficient supervisory systems to monitor the transmittal of customer funds to third-party accounts.

Morgan Stanley was fined $650,000 after Finra found that, from October 2008 to June 2013, three registered representatives in two different branch offices converted a total of about $500,000 from 13 customers by creating fraudulent wire transfer orders and branch checks from the customers’ accounts to third-party accounts. Supervisory failures allowed the conversions to go undetected, Finra said.

Scottrade, which was fined $300,000, didn’t obtain customer confirmations for third-party wire transfers of between $200,000 and $500,000 from October 2011 to October 2013, according to Finra. The agency alleged Scottrade processed transfers totaling about $880 million during that period.

Morgan Stanley, which has around 16,000 brokers and advisers, and Scottrade, which has around 2,000 registered brokers, agreed to the sanctions without admitting or denying the charges.

A spokesman for Scottrade, Whitney Ellis, said in a statement that the firm has resolved the issue after updating its procedures in 2013 and improving the notification process for third-party transfers.

A representative for Scottrade said clients now receive multiple notifications of pending wire transfers, and the appropriate supervisory procedures are in place.