DOJ likely to take a close look at Schwab acquisition of TD Ameritrade

Antitrust concerns could arise over custody concentration, zero-commission trend

Nov 21, 2019 @ 1:56 pm

By Mark Schoeff Jr.

Financial advisers, industry leaders and investors are not the only people riveted by Charles Schwab's acquisition of TD Ameritrade Holding Corp. The Department of Justice is also likely to examine the deal.

The $26 billion transaction could raise antitrust concerns surrounding the concentration of advisory client assets on the combined firm's platform, as well as whether the union of two large market participants will slow the push toward eliminating commissions.

"There's no question DOJ will take a look at it," said George Hay, professor of law at Cornell University and former chief economist in the DOJ's antitrust division.

Kyle Voigt, an analyst at Keefe Bruyette & Woods, also expects the merger will face antitrust scrutiny.

Schwab and TD Ameritrade are both top providers of custody services to independent financial advisers, which could give authorities pause, Mr. Voigt wrote in a client note Thursday.

He estimates Schwab has about a 50% market share of the custody assets of registered investment advisers, while TD Ameritrade may have up to 20%.

Another area DOJ lawyers may parse is the effect the merger would have on the recent trend of slashing commissions to zero. They may ask whether that movement, which started with Schwab's decision to end commissions for the online purchases of U.S. stocks, exchange-traded funds and options, would have begun if the merger had been announced six months ago, Mr. Hay said.

"Here we have direct, head-to-head competitors, two of the biggest online discount [brokers]," he said. "Will this be the end of discount trading as we know it?"

[Recommended video: Bernie Clark: Zero commissions give advisers more opportunity to win clients]

The DOJ review will slow the merger, Mr. Hay said. The agency will go through two separate information-gathering processes that could involve the collection of reams of data and many interviews with industry participants and customers.

There is no deadline on a final DOJ decision.

"It's going to be a matter of months at least before this merger can be consummated," Mr. Hay said.

Although Republican administrations are usually more sympathetic toward corporate consolidation, that doesn't mean the Trump DOJ will rubber-stamp the Schwab-TD union.

"It's not that they don't believe in merger enforcement. They do," Mr. Hay said.

But he expects the companies will be well prepared for antitrust questions. "You don't go into a deal like this without having your ducks lined up," Mr. Hay said.

Bloomberg News contributed to this story.

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