What the Charles Schwab, TD Ameritrade Move Means for Banks

Charles Schwab’s strategy of going to a commission-free trade business paid off handsomely, bringing in one of its biggest competitors this week. Schwab’s acquisition is worth more than $25 billion and will make it a leading firm beyond just the brokerage space.

Analysts stated that TD Ameritrade was hit the hardest out of all of the online brokers because their model was most affected by losing the trade commissions. That fact makes the move somewhat of a storybook ending to the company strategy that Charles Schwab is the company coming in for the close.

But the real benefit to Schwab is that it will be a firm bigger than some of the largest banks in the country with strength across both the institutional and retail sectors of the financial industry. These two firms can also be seen as much closer to their customers than some of the bigger banks and will be able to slip into the role of providing traditional banking products for its customers.

They are going to extend home equity loans, collateralized loans and build traditional bank assets as they go. It has been two decades since Charles Schwab knocked out traditional discount broker competitors such as Jack White by beating them to the punch online. The company has the same potential to do this in the banking sector. With TD Ameritrade, it also has an edge in the dominant ETF market.

In the Exchange Traded Fund space, the biggest players continue grow and dominate the market. Consolidation of fees squeeze out the competitors, and the survivors can take aim at acquisitions just as it has in the discount broker space.

Some analysts have also said there is one more hidden benefit of Charles Schwab’s move: while it smells like a bank and acts like a bank, it is still not seen as a bank by regulators. A merger this size in the traditional bank space would be under a great deal more scrutiny, but instead it will likely go through in 2020.

The key, it seems, can be to call the company a bank long after it has the capabilities to serve as one. It is one of the great moves of 2019 in the financial sector.