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Schwab Closes Deal With USAA's Investment Management Company

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The Charles Schwab Corporation (SCHW - Free Report) has closed the acquisition of the assets of USAA’s Investment Management Company, including its brokerage and managed portfolio accounts. With an aim to diversify revenues, Schwab announced the deal in July 2019.

At the time of the announcement, the all-cash deal was valued at $1.8 billion. Schwab projected the transaction to be modestly accretive to earnings on a cash basis by the first year and on a GAAP basis by the second year.

Also, it expected expense synergies from a reduction in clearing fees and other operating expenses.

Notably, as announced earlier, both companies have also entered a long-term referral agreement, which makes Schwab the exclusive wealth management and brokerage provider for USAA members. This is expected to provide “incremental organic growth opportunity for Schwab.”

Walt Bettinger, president and CEO of Schwab, stated, “We are incredibly honored that USAA entrusted Schwab with the vital task of building the financial futures of its members. We understand that with this transaction comes a great responsibility to USAA members and their talented employees, and we are committed to making the integration as seamless and efficient as possible.”

President and CEO of USAA Investment Management, Wayne Peacock, said, “USAA and Schwab share an unwavering commitment to the financial security of our members and clients. Schwab approaches every decision ‘through clients’ eyes’ and offers a wide selection of investment products and services for some of the lowest costs in the industry. Our members now will receive expanded solutions from Schwab, who shares our client-centric approach and is committed to serving and employing military members.”

The transaction will add scale to Schwab’s Investor Services segment, with the addition of more than 1 million new accounts and roughly $90 billion in client assets.

Almost 400 former employees of USAA have joined Schwab to support the new accounts and help transitioning members feel confident about their accounts moving to Schwab.

Now, with the completion of the deal, Schwab has an opportunity to serve USAA members as their exclusive provider of wealth management and investment brokerage services through the long-term referral agreement.

Past Announced Deals

Over the past year, Schwab has been undertaking several inorganic moves. Early this month, the company entered an all-cash deal with Motif to acquire the latter’s technology and intellectual property. In February 2020, Schwab inked an all-cash deal to acquire Naples, FL-based Wasmer, Schroeder & Company, LLC.

Then in a surprise move, Schwab inked a deal to buy TD Ameritrade Holding (AMTD - Free Report) for nearly $26 billion in November 2019. The stock and cash transaction will create a behemoth in online brokerage space.

Our Take

The company’s inorganic growth efforts, with support from strong capital position, are expected to boost market share and enhance profitability over time. Also, its intention of strengthening the trading business by offering commission-free trading seems impressive. However, lower interest rates are expected to hurt its margins.

Shares of this Zacks Rank #3 (Hold) company have lost 27.4% so far this year compared with the industry’s decline of 17.7%.






A couple of stocks from the finance space worth a look are mentioned below.

Tradeweb Markets Inc. (TW - Free Report) has witnessed an upward earnings estimate revision of 6.6% for 2020 over the past 60 days. This Zacks Rank #1 (Strong Buy) stock has gained 36.5% so far this year.

GAIN Capital Holdings, Inc.’s (GCAP - Free Report) current-year earnings estimates increased significantly in 60 days’ time. Further, the company’s shares have appreciated 58.2% year to date. At present, it sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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