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Scottrade Deal Transforms TD Ameritrade

The narrow-moat company expects to realize significant synergy savings in the coming months--and may experience revenue synergies, too.

Narrow-moat

Signs point to additional benefits from the Scottrade acquisition flowing into earnings over the coming quarters. TD Ameritrade plans to finish transitioning Scottrade’s clearing operations in the March quarter, after which it should start realizing the bulk of the around $200 million of synergy savings expected in the first year. While it’s often reasonable to be skeptical of revenue synergies related to acquisitions, it seems that Scottrade clients traded less derivatives than TD Ameritrade clients. As brokerages have higher revenue on option trades, it’s quite plausible that more derivatives trading at Scottrade customers will increase revenue, especially if TD Ameritrade leverages its educational offerings. Another metric that bodes well for the Scottrade acquisition is that net new client asset growth was about 9.5% in the quarter, in line with the company’s historical growth rate. This was reassuring, as competitors have likely increased their efforts to lure Scottrade clients during the integration period.

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About the Author

Michael Wong

Director of Equity Research
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Michael Wong, CFA, CPA, is director of equity research, financial services, North America, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Michael previously served as chair of the valuation committee. Before assuming his current role in 2017, he was a senior equity analyst, covering investment banks and brokerages. Before joining Morningstar in 2008, he worked in corporate and public accounting.

Wong holds a bachelor’s degree in business administration, with concentrations in accounting, corporate finance, and financial services from San Francisco State University, where he graduated summa cum laude. He also holds the Chartered Financial Analyst® designation and is a Certified Public Accountant. Wong has also passed the Certified Financial Manager (CFM) and Certified Management Accountant (CMA) exams.

Wong won the “Technology Thought Leadership” award at the 2016 WealthManagement.com Industry Awards for his report, The Financial Services Observer: The U.S. Department of Labor’s Fiduciary Rule for Advisors Could Reshape the Financial Sector. In 2011, he ranked second in the Investment Services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. Wong was awarded the summer 2005 Johnson & Johnson Institute of Management Accountants CFM Gold Medal.

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