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Walt Bettinger, the chief executive of Charles Schwab, seated on the far left. The firm held a business update event this week.
- Charles Schwab execs on Tuesday talked about issues including the firm's pending TD Ameritrade acquisition and digital strategy.
- The firm estimated that it will spend $1.6 billion over three years following the TD Ameritrade deal closing, and has formed an "integrated management office" to preside over how the two firms mesh.
- Investors reacted positively and Charles Schwab made no meaningful adjustments to forward guidance. Some analysts said they were concerned about integration and customer attrition.
- Management highlighted landscape through the lens of competitors offering cash for opening new accounts, without mentioning a company by name, and called the intensity of those offers "higher than ever before."
"Unfortunately, this approach works," Bettinger said on Tuesday in prepared remarks. "And so therefore, organizations like ours, despite finding it a somewhat distasteful approach, recognize that we have to be willing to match these types of things or there's a certain percentage of clients who will move on."
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In a small auditorium in San Francisco, Charles Schwab executives took the stage to address an audience of curious analysts and other attendees.
Execs including Schwab's chief executive, chief operating officer, and head of adviser services offered new details around its pending $26 billion TD Ameritrade acquisition, stiff competition, and the firm's digital strategy during a longer-than-usual investor presentation that ran for most of the day on Tuesday.
At times, exchanges about issues like possible anti-trust concerns and integration were testy.
Charles Schwab and TD Ameritrade disclosed in filings last week that the Department of Justice's antitrust division had requested additional information about the deal, which the pair of firms called customary and will now extend the DoJ's review period.
"Your market share in the RIA business post-Ameritrade deal, between 40% and 50%," an Autonomous Research analyst said at one point. "Just, maybe, what's your argument as to why that is not anti-competitive?"
"Let me first say, I'm not sure that I believe that market share percentage," Schwab CEO Walt Bettinger responded.
AP Photo/Mark Lennihan
"I think it's based on your data that you guys used to present," the analyst replied, to which Bettinger said that "if you simply narrow it down to purpose-built platforms, yes, we may be in the 40% range market share combined," but he believed registered investment advisers (RIAs) have robust choice when it comes to service providers.
Charles Schwab now projects $1.6 billion in integration costs over three years, following the TD Ameritrade deal's expected closing later this year.
It has also formed an "integrated management office" (IMO), set to launch early this month, to govern how the two firms combine.
"Phase Zero" of integration, the firm is calling it, has also included engaging the global consulting firm Boston Consulting Group.
Investors seemed pleased with what came of the 4-1/2-hour-long business update, which was the first since the firms announced the planned merger last November. Charles Schwab shares rose by as much as 5% during the session, closing 3% higher and outperforming the broader market.
Still, some analysts walked away with lingering concerns around how the deal - a massive undertaking bringing together complex technology systems, thousands of employees, and a network of some 640 branches - will play out.
The merger's mechanics
As the largest US securities-brokerage deal on record, according to the market intelligence provider Dealogic, the combined firms would have some $5 trillion in client assets. And it's pushed rivals like E-Trade and Fidelity to consider how they'll combat this new giant of custody, brokerage, and wealth management.
Goldman Sachs analyst Will Nance wrote in a note to clients on Wednesday that while he is encouraged by the firm's commitment to sticking with its earlier guidance around executing the deal, "some may question whether SCHW's plan may prioritize hitting targets over leveraging the strengths of AMTD's platform."
Deutsche Bank analyst Brian Bedell meanwhile said in a note to clients that he thinks the three-year-long integration period may be "rocky," and thinks that more clients will leave than management estimates.
And it's all set to take place against an increasingly crowded, intensely competitive backdrop, captured in this slide.
Charles Schwab
"While competition is not new, the aggressiveness has increased across the industry since the proposed merger with AMTD/SCHW was announced," Daniel Fannon, an analyst with Jefferies, wrote in a note to clients, referring to the firms' stock tickers.
Management highlighted landscape through the lens of competitors offering cash for opening new accounts, without mentioning a company by name, and called the intensity of those offers "higher than ever before."
For instance, customers who "switch" to E-Trade and open an account can receive a $100 cash reward, according to one current advertisement.
"Unfortunately, this approach works," Bettinger said on Tuesday in prepared remarks. "And so therefore, organizations like ours, despite finding it a somewhat distasteful approach, recognize that we have to be willing to match these types of things or there's a certain percentage of clients who will move on."
That sentiment was echoed in this slide.
Charles Schwab
Charles Schwab also provided new details around its robo-advice products.
Business Insider previously reported in December that it launched a product around automating tax advice for customers nearing retirement age. Its digital advisory solutions' assets under management have climbed to $47 billion across some 355,000 accounts.
And this year, it plans to fully roll out a chat-bot product aimed at speeding up call volume into its customer service lines and bulk up its mobile app with more "thought leadership content" for users.
