Scottrade Inc. expects to have the necessary regulatory approvals to launch an online thrift during the first quarter, and over time it hopes to offer banking products in its brokerage branch network.
The St. Louis company received approval for a thrift charter from the Office of Thrift Supervision on Nov. 13. Joseph Pope, hired in January to be the president of the thrift, which will be called Scottrade Bank, said last week that Scottrade expected to get the green light from the Federal Deposit Insurance Corp. "in the next 60 to 90 days."
Scottrade announced that it has has established a holding company called Scottrade Financial Services Inc., chartered in Delaware, to hold the outstanding common stock of Scottrade Bank and the outstanding stock of Scottrade Inc.
"We have gotten OTS approval, but we cannot commence banking until we get FDIC approval," he said in a Nov. 16 interview. "That process is in Washington and things are under consideration. I don't anticipate any issues, but the timing is uncertain. I think the expectation that we will get this off the ground in the first quarter of next year is a reasonable estimate."
Mr. Pope, who had been the chief financial officer of Truman Bancorp Inc. in St. Louis before Scottrade hired him, said Scottrade Bank, to be based in Des Peres, Mo., would offer a program allowing the free credit balances from Scottrade Brokerage accounts to be swept into the thrift.
With those assets Scottrade Bank would create a fairly conservative bank investment portfolio, he said.
"That is really Phase 1 of our foray into banking," he said. "Ultimately, we hope that this bank allows us to offer a wider array of products and services to our customers that will allow us to strengthen the relationships that we have with them."
Over the next three to five years Scottrade plans to roll out traditional banking products and services, including online checking accounts, savings accounts, certificates of deposit, and "potentially" credit cards and consumer loans, Mr. Pope said.
Despite the current market environment, the lineup may also include some mortgage products, he said. "Ultimately, we think we will have an opportunity to do something with mortgages. But we have not really built a business plan completely yet."
Scottrade has the largest branch network among online brokerages, with 325 branches nationally. Mr. Pope said he hopes the network complements the banking strategy.
"The branch network is one of our strengths and one of the major differentiators between us and our competitors, but the role it will play in our banking strategy has still yet to be determined," he said.
"We don't have a specific plan in terms of how we want to use our branch network, we just know that we want it to be an option," he said. "We selected a thrift charter because it gives us the flexibility if using the branch network becomes a priority for us."
Mr. Pope said Scottrade told the OTS that at first Scottrade Bank would offer only the cash sweep products, in order to build its bank investment portfolio. So before expanding the bank, Scottrade would have to go back to the regulator with an amended business plan.
"Because of a lot of the regulatory issues surrounding what is a bank versus what is an online bank, we are really still quite early in the game to determine what role the branches may ultimately play in our banking strategy," Mr. Pope said.
Analysts said that some of Scottrade's competitors have spent the past few years developing banking products and services.
Charles Schwab Corp., an online rival, started a bank subsidiary in 2003, and in February A.G. Edwards Inc. started a program that offers FDIC insurance and the opportunity to earn higher interest on deposits through A.G. Edwards Trust Co., a federal savings bank.
Mr. Pope said that Scottrade is well aware of what its rivals are doing in terms of developing banking capabilities.
"As competitors have expanded their product offerings, not just in terms of banking but with brokerage in general, we have tried to always be responsive," he said. "We don't want to lose customers because a competitor is offering something that we don't. We always want to keep pace with other online providers."
He said that he is excited that Scottrade is set to get the bank started and all the red tape is almost out of the way.
"We have a game plan for success and a lot of valid reasons to get into the banking arena," he said. "Now we're ready to put the plan in motion."
