The Schwab Corporation
, the largest online broker, will be acquiring money manager, US Trust Corporation,
for $2.7 billion in stock, creating a combined entity that now offers a full menu of services for the high-net-worth market, the company said today.
Schwab says it is the first to apply for regulatory approval as a financial services holding company under the new Financial Services Modernization Act of 1999, also called the the Gramm-Leach-Bliley Act, signed by President Clinton in November, 1999.
Shareholders of US Trust will get 3.427 shares of Schwab for each share of US Trust, with a combined value of $129 a share, Glen Mathison, a spokesperson for Schwab told the MFWire.com. Schwab expects to gain $80-100 million in increased revenues from the deal.
The acquisition of US Trust means the addition of a high-net-worth private banking referral program, as well as trust services, private banking and wealth management for the "middle" affluent market.
US Trust will become a separate subsidiary of Schwab, retaining its name, brand, headquarters in New York and current executive management team. H. Marshall Schwartz will continue as chairman and CEO of US Trust, reporting to David Pottruck, Schwab president and co-CEO. Mathison said talks of combining the two entities began over a year ago with a plan to strengthen the full-service brokerage and wealth management firm.
Schwab chairman and co-CEO, Charles R. Schwab
said, "We've long held a goal of building an organization that can serve investors completely -- from those taking their first steps towards becoming lifelong investors, to those looking
to manage their accumulated wealth for themselves and their families."
"We believe U.S. Trust brings the most respected wealth management expertise in the nation,
and our combined strengths create an organization that can serve clients at
every stage of wealth accumulation," Schwab added. "The combination also adds new strengths to
the services that Schwab's affiliated investment advisors provide. U.S. Trust
represents for us a piece of the puzzle that had been missing in our offering to
In a separate press briefing with John Coghlan
, vice chairman of Charles Schwab Corp. and president of Schwab Institutional, Coglan said he expects investment advisors to be surprised when they hear the news. A mass e-mail was sent to 800 of Schwab's largest advisor clients this morning -- that will be followed by conference calls and meetings around the country.
When asked if there will be any further acquisitions Coghlan explained that there are two choices a company has when expanding its business: One, to build internally, and the other, to acquire another business. In this case it made more sense for Schwab to buy US Trust rather than duplicate it because of its depth and experience within the high-net-worth market, he said.
"We will be making more acquisitions whereever we can gain capabilities to grow rapidly," Coghlan said. When asked what holes he perceives will need to be filled, he said, global expansion will be most likely filled through ventures. "Making partners outside the US is a case where it makes a lot of sense to Schwab, since we may not know the country and its cultures very well."
Jeffrey S. Maurer
, president and chief operating officer of US Trust told the MFWire.com that US Trust presently spends $2 million on advertising where Schwab's budget runs around $300 million. "If we add four or six million the added effectiveness of national brand recognition will be vast. That should be more than enough resources to expand our brand."
There will be an expansion of brand advertising, Coghlan said, with an ambitious growth rate. "We still have a lot of development work to do -- after the deal closes in July there will be new marketing," he said.
, president of Bobroff Consulting Inc.
said, "If they had acquired Janus or any other advisor I would be worried but the acquisition of US Trust, more of a core manager, might be the best of all worlds for Schwab."
"Schwab sees the next ten years as being very important to deliver services to emerging high-net-worth individuals and its recipients," he said. "The challenge is going to be how to take US Trust, which is a high touch business, and translate it to something low touch. Can it be done?"
With the multiple that Schwab paid for US Trust, it will have no choice other than to make it technology driven to justify the premium it paid in the marketplace, Bobroff said.
"Both Merrill and Morgan Stanley Dean Witter have encroached upon Schwab's traditional territory of online and discount brokerage customers. Merrill did so through launching its Merrill Lynch Direct, its Internet trading initiative, and Morgan Stanley Dean Witter chose to unite its online and full-service brokerages under a common brand name," said Cerulli Associates
, a Boston-based research and management consulting firm for financial institutions. "It was only a matter of time until Schwab decided to fight back by entering Merrill and Morgan Stanley Dean Witter's turf with a full-service offering."
Even after the acquisition Schwab is still missing the mid-market -- customers with $100,000 to $1 million in assets -- that Merrill and Morgan Stanley Dean Witter are able to cultivate, Cerulli said.
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