Shares of discount brokerage firms were mixed Thursday after a report that Toronto-Dominion Bank could be mulling a sale of the U.S. arm of its TD Waterhouse Discount Brokerage unit.
The Canadian bank has struggled to find a place for TD Waterhouse, the online brokerage it bought in 1996, brought public in 1999, and took back in-house in 2001 after the stock markets began to falter. The unit has never really gotten big enough to compete effectively against Charles Schwab Corp. or Ameritrade Holdings Corp., and the bursting of the Internet bubble dried up revenues from individual investors.
Analysts theorized Thursday about possible buyers for the U.S. operation, including Charles Schwab, Ameritrade, and even E-Trade Group Inc., but the speculation was not enough to make a big dent in the stocks of these companies. Shares of Schwab fell 0.12%, Ameritrade gained 2.2%, and E-Trade declined 0.18%. Meanwhile, Toronto-Dominion's stock gained 2.08%.
The Wall Street Journal reported Thursday morning that a sale was one of several options Toronto-Dominion was exploring and that the U.S. arm could sell for about $1.5 billion. The newspaper also said that Toronto-Dominion had hired Goldman Sachs Group Inc. to help it evaluate alternatives.
"I don't think people are exactly sure how to react," said Michael Vinciquerra, an analyst at Raymond James & Associates. "Any trading now is pure speculation."
Ameritrade has said explicitly that it wants to be a consolidator, but the TD Waterhouse operation would be "a poor fit," Mr. Vinciquerra said. There is not enough information on its cost or profitability at this point to completely evaluate the situation, but if Ameritrade could buy the operation at a great price and eliminate a lot of the costs, such as the 150 branches, then it could work, he said.
A spokeswoman from Ameritrade said that it does not comment on rumors or speculation, but "one of our strategies is to grow our company both organically and through acquisition, and we're always evaluating opportunities." For example, in September it bought the online brokerage Datek Online Holdings Corp.
A Schwab spokesman said that it "does not ever comment on any kind of speculation or rumors." A spokesman from E-Trade was not available for comment.
A spokeswoman for TD Bank would not comment on the rumor, but said that wealth management in North America is a key focus and TD Waterhouse is part of that strategy.
In response to slumping revenues, brokerages have been trying to find ways to lower costs and diversify beyond the stock market. Schwab, for one, has slashed staff and other expenses, though it has also introduced new services through its newly formed bank unit.
Another possible buyer for TD Waterhouse's U.S. operations would be another bank, said Rachel Barnard, an analyst from Morningstar Inc.
Such an outcome would be similar to when Harris Bank, a Chicago unit of Bank of Montreal, acquired the online discount brokerage CSFBdirect from Credit Suisse First Boston Corp. in February 2002, she said. (CSFBdirect, now part of HarrisDirect, was known as DLJdirect until Credit Suisse Group bought its parent Donaldson, Lufkin & Jenrette Inc., in 2000.)
The American Banker index of 225 bank stocks rose 0.02% and the index of the top 50 bank stocks increased 0.13%. The Dow Jones industrial average sank 0.3%, while the Standard & Poor's 500 lost 0.07%.
