Charles Schwab SCHW is on an acquisition spree, with the goal to strengthen its position in the brokerage industry. The company has inked a deal to acquire Naples, FL-based Wasmer, Schroeder & Company, LLC. The value of the all-cash deal has not been disclosed.
Wasmer Schroeder is an independent investment manager of fixed income separately managed accounts. It had almost $10.5 billion in assets under management as of Dec 31, 2019. The deal is expected to enhance Schwab’s fixed income capabilities and expand its approximately $90 billion in separately managed accounts.
The transaction, subject to customary closing conditions, is expected to close by mid-2020.
Wasmer Schroeder’s team of more than 60 employees, including roughly 30 investment professionals, has significant experience in the fixed income markets. The deal will provide Schwab an opportunity to increase asset flows in fixed income separately managed account business.
Rick Wurster, executive vice president, Schwab Asset Management Solutions said, “Wasmer Schroeder’s professionally managed portfolios and investment capabilities will help Schwab deliver on a wide-range of fixed income investment needs and preferences, and complements the total wealth management offering we make available to our retail and RIA clients.”
Past Announced Deals
Over the past year, Schwab has been undertaking several inorganic moves. In July 2019, it announced a deal to acquire certain assets of USAA’s Investment Management Company, including brokerage and managed portfolio accounts. The all-cash deal is valued at $1.8 billion.
Then in a surprise move, Schwab inked a deal to buy TD Ameritrade Holding AMTD for nearly $26 billion in November 2019. This stock and cash transaction will create a behemoth in online brokerage space. (Read more: Schwab's Buyout of TD Ameritrade to Shake Up Online Brokerage)
Both the transactions are expected to close later this year. The deals are expected to be accretive to earnings following the closure, and projected to result in revenue and cost synergies.
Amid a low interest rate environment, Schwab’s inorganic growth initiatives are expected to boost its market share, and enhance profitability over time.
Also, the company is undertaking efforts to improve trading revenues. For this, Schwab announced commission free trading in October 2019. Though this is likely to lead to 3-4% decline in quarterly net revenues in the near term, the company has been able to garner significant market share, as evident from a rise in active brokerage accounts since then.
Also, with Morgan Stanley MS recently acquiring E*Trade Financial ETFC, Schwab is likely to face increased competition. Thus, all these measures are anticipated to provide support to the company’s prospects.
Shares of this Zacks Rank #3 (Hold) company have rallied 15.2% over the past six months compared with the industry’s rise of 17.9%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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