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[TORONTO] Toronto-Dominion Bank and TD Ameritrade are buying Scottrade Financial Services for US$4 billion in a deal that will combine two of the biggest US discount brokerages, the companies said on Monday.
TD Ameritrade, the largest US discount brokerage by trade executions, said it would pay US$2.7 billion for Scottrade's brokerage business. Toronto-Dominion Bank, TD's largest shareholder, is acquiring Scottrade Bank for US$1.3 billion in a deal that will expand its US operations.
The purchase of Scottrade by TD Ameritrade, which is subject to approval by US regulators, will produce a combined business with around 10 million client accounts and US$1 trillion in assets, which will execute around 600,000 trades per day.
It is the latest in a wave of consolidation among discount brokerages, which are facing weak trading volumes and slow revenue growth as wealth managers cut fees amid intense competition. E*Trade Financial Corp, another discount broker, said in July that it would buy online brokerage OptionsHouse for $725 million while Ally Financial Inc purchased TradeKing Group for about US$275 million a month earlier.
TD Ameritrade CEO Tim Hockey said the deal will leave the combined business well-placed to compete and respond if a price war over commissions accelerates.
"We certainly believe the regulators will look fairly at this deal and will opine," he said in an interview. "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."
Mr Hockey said TD Ameritrade will look at further deals which"make strategic and financial sense" in addition to Scottrade.
TD Ameritrade, 42-per cent owned by Toronto Dominion Bank, said it expected to make annual cost savings of US$450 million as a result of the deal, with another US$300 million of potential savings identified in the longer term.
As part of those plans, Mr Hockey said around 25 per cent of the combined business's 600 branches will be closed. TD Ameritrade currently has 100 branches while Scottrade has 500. Mr Hockey said in the interview the combined workforce of 10,000 will be reduced by about 20 per cent.
"Once we've identified where there are overlaps in current locations we expect to settle at around 450," he said.
The US$2.7 billion TD Ameritrade is paying for Scottrade's brokerage business comprises US$1 billion in new common TD Ameritrade shares and US$1.7 billion in cash.
Rodger Riney, the founder, chief executive officer and controlling shareholder of St Louis-based Scottrade, will join TD Ameritrade's board after the deal closes, the companies said.
The companies expect the deal to close by Sept 30.
TD Bank has been expanding aggressively in the United States, growing both its retail and investment banking divisions as it looks to diversify from its home market. It has already grown to be one of the 10 biggest banks in the United States and has a major retail presence with 1,300 branches.
CIBC analyst Robert Sedran questioned whether TD would have purchased Scottrade Bank were it not to help facilitate the transaction for Ameritrade.
"We do not believe TD would have pursued Scottrade Bank as a standalone acquisition," he said.
Shares in TD were up 0.35 per cent with TD Ameritrade down 2.9 per cent in mid-morning trade.