Brokerages seen as possible takeover targets

New York Stock Exchange

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Kai Ryssdal: There was a tug of war today between the bulls and the bears on Wall Street. The object of their affections, as it was most of last week, was the bond market. Investors are trying to figure out what rising interest rates are gonna mean.

For the short term, mostly what they're gonna mean is more trades. But while all those billions of shares have been changing hands, some brokerage houses have actually seen their slice of the pie slipping. Which in turn has some analysts predicting some independent brokers might be ripe for a takeover.

Here's more from Marketplace's senior business correspondent Bob Moon.


Bob Moon: It got to the point where it seemed everybody was getting into the brokerage business, from the biggest banks, to Allstate Insurance, and — for a time — even H&R Block.

Dan Scalzi of Matrix Investment Research says that's made the industry fiercely competitive.

Dan Scalzi: You have a lot of people who think that if I can, you know, put brokers in seats, that we can make money — because we have access to individuals who have money who would invest with us. That's why there's trouble. I mean, there is a ferocious battle for assets.

Charging fees every time those assets change hands is how the brokerages make money. But competition has forced companies to slash prices to attract and retain customers.

That's left the middle-level brokerage houses . . . well, in the middle, and likely takeover targets. Just last week, TD Ameritrade came under pressure from activist shareholders to make a deal — possibly with rivals E-Trade or Charles Schwab.

Analyst Dick Bove at Punk Ziegel says banks are also likely to come calling. Wachovia bought A.G. Edwards earlier this month, and Bove explains that extra sales force can be put to broader use:

Dick Bove: You can use it to sell bank loans, mortgages, auto loans. You're able to, if you will, use that same distribution pipeline. But by putting a different level of product through it, you're able to turn it on to be a profitable pipeline, whereas previously it was not.

For the average consumer, the experts we spoke to say all this competition is — in the short term, at least — a good thing. It'll bring lower prices.

But Adam Ritt, with the National Association of Investors, says customers who find their accounts being transferred to new companies should watch the fine print.

Adam Ritt: A lot of these great deals, where it's $9.99 a trade or $7 a trade, these are wonderful deals. But they're for specific types of accounts, the amount of money you have in there, the number of trades you make a month. If you're only making a couple of trades a month, it's possible that these great deals won't apply to you.

With plenty more takeover targets still out there, Ritt says investors should watch their accounts as the names of the companies change.

In Los Angeles, I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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