The Internet-IPO craze is about to hit a fund supermarket. Toronto-Dominion Bank (NYSE:TD) will sell 10% of its Waterhouse Investor Services division to the public this Spring. The offering is expected to value the firm at $7 to $10 billion. Waterhouse's Institutional unit is the old Jack White unit which handles custody business for advisors.

Toronto-Dominion shouldn't be blamed for trying to cash in. Already, E*Trade is valued at roughly $7 billion by the market. Meanwhile, Schwab trades at a 110 PE and a market cap of more than $38 billion.

More than $350 million could be raised in an offering if Waterhouse prices itself at 50% of its expected trading value as other recent Internet IPOs have done. This money could be used by the discount-broker to beef up its systems in its race with Schwab to win over and retain the custody business of financial advisors.

Waterhouse currently ranks second among the supermarket custodians in terms of financial intermediaries served, according to research by Boston-based Cerulli Associates. Waterhouse serves 2,900 intermediaries compared to 5,400 for Schwab, 584 for Fidelity, and 326 for DataLynx.

Yet in the all important assets-in-the-door ranking Waterhouse falls to third, says Cerulli. Schwab leads with $122 billion, Fidelity is second with $21 billion, Waterhouse has $7 billion, and DataLynx is nipping at its heels with $6 billion.

Waterhouse handled about 90,000 trades, including 55,000 on the 'Net, every day -- seven times more than when Toronto-Dominion bought it in 1996. These numbers should only rise as Waterhouse adds about 2,000 accounts a day to its base of 1.6 million customers.

For a look at the comparative market caps of Internet brokers follow this link.  

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