Six months ago Toronto-Dominion Bank said it wanted to go head to head with discount broker Charles Schwab & Co.
The Canadian bank had just struck a deal to buy California-based broker Kennedy Cabot & Co. through its U.S. discount brokerage unit, New York- based Waterhouse Investor Services, for roughly $155 million.
Last week Toronto-Dominion moved again to sharpen its competitive edge in this country, announcing that it intends to buy the San Diego discount broker Jack White & Co. for $100 million. The deal is expected to close in June.
Schwab is "still a lot bigger than us," acknowledged Duncan Gibson, a Toronto-Dominion vice chairman in charge of wealth management. "But we've got a very, very good business and strong momentum."
Fueled by acquisitions, that momentum has seen Waterhouse increase its U.S. network to 128 offices in 48 states. Plans are to have 200 offices by the year 2000.
Though Jack White would bring no physical presence-it is a one-shop call-center operation-it has a formidable menu of third-party mutual funds, which Waterhouse lacks. Waterhouse stands to gain a mutual fund supermarket with 6,400 third-party funds, 1,200 of which do not carry transaction fees.
That would put Toronto-Dominion in front of Schwab in terms of the sheer number of funds it could offer U.S. investors. Schwab's OneSource no- transaction-fee fund market offers roughly 800 funds.
"There's no doubt this fortifies TD's position in the U.S. brokerage business," said Nigel Dally, an equity analyst with Morgan Stanley, Dean Witter & Co., commenting on the Jack White deal.
But Toronto-Dominion is still playing catch-up to Schwab, said Mr. Dally. "It's relatively easy to bulk up on funds when you already have a program in place," he said. Gaining assets and customers is harder.
Indeed, the 110,000 customer accounts that Jack White would bring to Waterhouse pales when compared with the approximately 4.5 million customers using the OneSource program. Schwab would also remain at the head of the discount brokerage field in terms of physical presence, with 270 offices nationwide.
"Schwab is just a marvelous company," noted Mr. Gibson. But when asked if Toronto-Dominion Bank is capable of competing with Schwab, he declared: "We sure are."
Mr. Gibson pointed out that Waterhouse was voted best discount operation by Smart Money last year, beating both Schwab and Fleet Financial Corp.'s Quick & Reilly unit. Jack White was the magazine's top choice for the three years before that, Mr. Gibson added.
Jack White has always been a viable competitor, said Tom Seip, head of Schwab's mutual fund and international area. "Although a very small firm, they've been in the mutual fund supermarket business beginning the day after we were," he said.
Indeed, Jack White has long sought to mimic Schwab's success. The deal would give Toronto-Dominion access to a couple of hundred outside investment managers-a group that has been integral to San Francisco-based Schwab's strategy.
Waterhouse too was always a viable competitor to Schwab, said Mr. Seip. With Jack White, "they'll be tough," he said. However, he said he doesn't think Waterhouse will become as big as Fidelity Investments and Merrill Lynch & Co.
Mr. Gibson, meanwhile, is eager to point out that Toronto-Dominion's "very public" strategy toward discount brokerage has always been a global one, although North America has been a focus because of the number of investors in the market."We've been at it a long time, we like the business," he said.
"These people understand the discount brokerage business," said Jack White, the head of the firm that bears his name. In striking the deal, Mr. White said, he was also attracted to the bank's global push. "I think that will be major," he added.
Since last year Toronto-Dominion has had a presence in Australia; its Canadian discount brokerage arm, Green Line Investor Services, has been in Hong Kong since 1996. Last fall Green Line established an office in the United Kingdom.
Mr. Gibson said he would look at other acquisition opportunities as they present themselves. However, he said, the next six months will be spent integrating Waterhouse and Jack White.
