What Would The Combined Charles Schwab-TD Ameritrade Look Like?

After reports of a potential acquisition of TD Ameritrade (NASDAQ: AMTD) by Charles Schwab (NYSE: SCHW) for $26 billion surfaced yesterday, the stocks of both companies have surged by 17% and 7%, respectively. The U.S. brokerage industry has been under revenue and margin pressure for some time now with Robinhood disrupting the industry with its zero-commission trading accounts. Will all brokerages following suit and eliminating trading commissions recently, their top line was expected to shrink going forward.

Under the circumstances, consolidation in the industry is to be expected. Trefis captures trends in key operational metrics for Charles Schwab and TD Ameritrade along with peer E-Trade in an interactive dashboard. Based on the dashboard, we believe that the combined entity formed by Schwab and TD Ameritrade is likely to generate about $15 billion in annual revenues, and will have nearly $5 trillion in client assets.

The combined entity could generate $15 billion in annual revenues

• In 2018, Schwab and TD Ameritrade reported total revenues of $10 billion and $5.5 billion respectively.
• Though trading commissions were a small part of Schwab’s total revenues, it contributed a staggering 36% of Ameritrade’s top line in 2018.
• With all brokerages foregoing trading commissions since early October, TD Ameritrade was set to lost nearly $1.5 billion in annual revenues from 2020.
• According to our estimates, Schwab and TD Ameritrade are expected to report revenue declines of 4% and 21% in fiscal 2020, respectively.
• This works out to a combined revenue of $15 billion in annual revenues.

Additional details about the underlying operating metrics driving our revenue forecasts for Schwab and Ameritrade are available in our interactive dashboard.

The combined entity would handle nearly $5 trillion in client assets

• In 2018, Schwab and TD Ameritrade reported client assets of $3.3 trillion and $1.3 trillion, respectively.
• Despite the huge difference in client assets, the number of brokerage accounts handled by Schwab and TD Ameritrade’s was comparable at 11.5 million.
• This could largely be attributed to Schwab’s long-standing relationship with RIAs, who contribute towards Schwab’s $3 billion of asset management and administration fees.
• A comparison of trends in client assets for Schwab and TD Ameritrade over the years is detailed in our interactive dashboard.

We will highlight how revenues, expenses and valuation for the combined entity is likely to look like in subsequent articles early next week.

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