Shares of Charles Schwab and TD Ameritrade surged on Thursday amid reports of a possible merger that would unite two of the biggest brokerage firms.
The deal, under which Schwab reportedly would buy TD Ameritrade, could be announced as early as today, CNBC reports. Schwab's stock rose 10% in pre-market trading, while TD Ameritrade jumped 25%.
A combination of Schwab and TD Ameritrade, the No. 1 and No. 2 discount brokerages, respectively, would come amid a price war within the financial services industry. Many major brokerages, including Schwab and TD Ameritrade, have slashed their commissions to zero. While that's reduced costs for consumers, it means the financial services industry is searching for other sources of revenue.
The deal could be valued at $26 billion, Fox Business reports. Merging Schwab and Ameritrade makes strategic sense and would enable the enlarged company to boost revenue growth while cutting costs, according to Keefe, Bruyette & Woods.
Although antitrust enforcers are likely to look closely at the deal, Cowen analysts expect that it would ultimately get regulatory clearance, noting the considerable competition among discount brokerages. But a merger would face bigger political risks.
"For us, the concern is that this becomes political," Cowen analyst Jaret Seiberg said in a research note. "Democratic candidates including Sen. Elizabeth Warren have been railing against big tech and big banks. It is easy to see how this could get drawn into this anti-big business campaign."