Why Charles Schwab’s Acquisition of TD Ameritrade Makes Us Nervous

Charles Schwab has been our favorite bank and brokerage for a very long time. Whether it’s the firm’s stellar leadership, or the fact that they didn’t need bailout funds (TARP); there are so many things to admire about Schwab that an entire book could be dedicated to this company.

Over the years, we’ve referred dozens of entities to Schwab for brokerage and banking. In fact, we believe they offer the best checking account for foreign travel, period.

So why does the acquisition of TD Ameritrade make us nervous?

Because we favor Schwab the way someone favors a best friend, when they hear that they’re dating this new person that we don’t know, we get nervous. As simplistic as this sounds, it’s true. There are several other reasons why the acquisition makes us nervous, beyond the “If it’s isn’t broke, don’t fix it” philosophy.

We have relationships with lots of business brokers and mergers & acquisition specialists – and the one thing they all seem to agree on is the sentiment that 85%+ of M&A activity is detrimental to both companies. There are many examples, such as the New York Central and Pennsylvania Railroad bankruptcy, the Quaker Oats and Snapple disaster, or the ghastly AOL and Time Warner debacle. The thought of this happening to Schwab is beyond concerning.

Now if any company is capable of executing a good acquisition, it’s Schwab. However from our perspective, Schwab is doing just fine with their present organic growth strategy, and the cultural challenges of acquisitions concern us as well. Schwab customer service is stellar, yet TD Ameritrade is nothing special. However, we do see the strategic aspect here, since TD has been Schwab’s competitor until now, although it’s obvious who the winner has been. This is just another typical American-style acquisition, monopolizing an industry.

If we could be Walt Bettinger, Schwab’s CEO for a day, we’d be inclined to cancel the deal, but since that will only happen in our dreams, all we can do is pray that it works out – and sadly, consider the possibility that we may have to choose another firm one day.

But Walt and the executive team at Schwab are savvy, and they know full well why they’re winning; so the possibility of this merger breaking things that aren’t fixed for current Schwab customers is plausibly low. If nothing else, they are just buying TD’s customer base.

For further reading on the challenges of M&A, the Harvard Business Review’s (HBR) 1986 article on the topic is still quite relevant. Give it a read!

Blessings.