Schwab deal small boost to Scotiabank
By JOHN PARTRIDGE
Thursday, February 14, 2002 – Print Edition, Page B1
Bank of Nova Scotia's lagging discount brokerage arm will gain a little market share by purchasing Charles Schwab Canada, but the combined operations -- to be renamed ScotiaMcLeod Direct Investing -- will still fall well short of the leading players, observers say.
"Scotia wouldn't have more than about 125,000 accounts at most, and even adding the accounts from Schwab Canada, they're quite far behind the competition," Don Rolfe, managing director of industry research firm Gomez Canada, said yesterday, as Scotiabank confirmed a report in The Globe and Mail that it has struck a deal to buy the U.S.-owned discounter.
Gomez estimates that industry giant TD Waterhouse Group Inc. alone commands about half of Canada's approximately three million on-line discount brokerage accounts, followed by Royal Bank Action Direct and CIBC Investor's Edge with about 300,000 each. BMO InvestorLine, meanwhile, says it has about 269,000 active accounts.
Schwab Canada was founded in 1995 as Porthmeor Securities and acquired in 1999 by San Francisco-based Charles Schwab Corp., the world's biggest discounter.
It is thought to have about 28,000 accounts, although about one-third are held by clients of its small full-service brokerage.
Scotia Discount Brokerage Inc. chief executive officer James Werry would say only that the deal -- finalized at 5 a.m. yesterday after about two weeks of negotiations -- will boost the firm's account base by "roughly 20 per cent." He confirmed Schwab Canada has assets of about $1.5-billion, about one-third of which is held on behalf of full-service clients. He argued that "absolute numbers are not really the relevant issues."
The "key part" of the transaction, he said, is that combining the features and services of Schwab's service with those of the bank-owned firm will lead to "an enhanced offering for both Schwab and Scotia clients."
Industry sources told The Globe on Tuesday that Scotiabank would pay $35-million to $50-million for the acquisition that, one said, would amount to "almost twice as much as the next rival bidder."
Bank of Montreal and Royal Bank of Canada are said to have looked at Schwab Canada, which is being sold as part of a global retrenchment by its U.S. parent, whose business has tanked since the technology stock bubble burst.
Although neither Mr. Werry nor Schwab officials would discuss the price or other terms of the deal, which is expected to close in the next 60 days, one person familiar with the matter said the tab is "far south" of the $35-million to $50-million range.
Following similar moves by both RBC and TD, Scotiabank also said yesterday that ScotiaMcLeod, currently the brand name for its full-service brokerage, will become the overall Canadian brand for all its retail brokerage services. The bank is "committed to streamlining its brands" and providing "relevant, integrated financial solutions for clients," Mr. Werry said.
Scotiabank chairman Peter Godsoe said Schwab Canada is "an excellent strategic fit, consistent with our wealth management strategy of building a major brokerage business with a full range of offerings."
Analyst Quentin Broad of CIBC World Markets termed the acquisition a small step forward for the bank, which he said has been trailing its competitors in wealth management, and particularly in discount brokerage.
"This purchase doesn't leapfrog them to the head of the pack by any stretch of the imagination, but it's a movement in the right direction."
However, another analyst, who spoke on condition he not be identified, said the deal's greatest significance lies elsewhere.
"It's interesting because it's another American company that came in here with a huge amount of bravado and splash getting run out of town," he said. "It's a pretty amazing statement on the inability of foreigners to penetrate the domestic banking market."
Reached in San Francisco, Schwab spokesman Michael Durand said it would be unfair to label the U.S. firm's decision to leave Canada a "failure," adding that its Canadian unit has won "lots and lots of recognition" for the quality of its services. Yet, his explanation for the move suggests the company certainly has not met its goals.
"We haven't broken into the top tier of market share in Canada, and taking a pragmatic long-term view of the growth potential, the leadership of our company decided it would be best to sell the business and focus in other areas," Mr. Durand said.
Paul Bates, Schwab Canada's founder and CEO, said he will remain with the firm during its integration with Scotia Discount, but that his longer-term status has not yet been decided. "We're being very open-ended about that."
Schwab Canada has 135 employees, while Scotia Discount has about 240, Mr. Werry said. Some will lose their jobs at the end of a three- to four-month transition, but the bank will "work hard" to redeploy them elsewhere in the organization, he said. |
