Waterhouse plans IPO this spring
By Reuters
Special to CNET News.com
April 4, 1999, 2:35 p.m. PT
NEW YORK--Waterhouse is the latest brokerage planning to go public, in a long-expected move by its owner to cash in on investor infatuation with the Internet.
Waterhouse's parent, Canada's Toronto-Dominion Bank, said it plans to sell a 10 percent stake in its discount brokerage operations to the public this spring. The stock offering could value Waterhouse alone at up to $10 billion, based on share prices of its publicly traded rivals, such as E*Trade.
"If E*Trade is worth $7 billion, these guys ought to be worth at least as much, like $7 to $10 billion," said analyst Scott Appleby of ABN-AMRO. Another analyst, who declined to be named, also put Waterhouse's value in that range.
That's not a bad investment for Toronto-Dominion, which bought the U.S. discount broker for $525 million in cash and stock less than three years ago. The planned stock sale also includes the bank's Green Line Investor Services brokerage, which operates in Canada and abroad.
The bank, the fifth largest in Canadat, is the latest financial institution aiming to cash in on the phenomenal rise in shares of Internet brokerages such as E*Trade, Charles Schwab, and Ameritrade.
Financial Group earlier this month said it might spin off its SureTrade Internet brokerage unit, and investment bank Donaldson Lufkin & Jenrette is creating a special stock to track its DLJdirect online subsidiary's performance.
The one remaining financial entity with a big online brokerage subsidiary is the nation's second-largest brokerage, Morgan Stanley Dean Witter, which owns Discover Brokerage Direct. The firm, however, has no plans to spin off the online subsidiary, said spokeswoman Jeanmarie McFadden.
Internet trading remains wildly popular, despite recent outages and glitches at many online sites. Investors funneled an estimated 440,000 trades a day through the Internet this quarter, up around 30 percent from the fourth quarter, said analyst Bill Burnham of CS First Boston.
Ballooning trading volumes and investors' willingness to pay up for shares of companies connected to the Internet has pushed shares of Internet brokers through the roof. Ameritrade and E*Trade shares have risen more than tenfold in less than six months. Schwab now has a bigger market value than the nation's largest brokerage, Merrill Lynch, though the San Francisco firm's profits were just one quarter of Merrill's last year.
Waterhouse, which is officially known as Waterhouse Investor Services, is one of the cheapest major online brokers with commissions of $12 per online trade. The firm processed roughly 90,000 trades a day in the first quarter, a seven-fold increase from the 13,000 trades Waterhouse handled when Toronto-Dominion bought it in 1996. Around 55,000 trades took place over the Internet, analysts estimated, with the rest handled by Waterhouse's brokers at its 160 branch offices.
The firm last year bought a small discount brokerage, Jack White, and vaulted past E*Trade to occupy the No. 2 spot on the online broker rankings, after Schwab. It posted a 130 percent jump in profits to $24 million in the first quarter, as revenues doubled to $161 million from the year-ago quarter.
Waterhouse has around 1.6 million accounts and currently opens more than 2,000 new accounts per day, according to Toronto-Dominion. Customers had about $75 billion in assets in their accounts at the end of the first quarter, around double the figure from a year ago. |
