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'Bigger is not always better,' says E*TRADE CEO after Schwab-TD Ameritrade deal


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'Bigger is not always better,' says E*TRADE CEO after Schwab-TD Ameritrade deal

E*TRADE Financial Corp.'s management was just as surprised as other industry participants by the latest tie-up in the online brokerage industry, its CEO confirmed.

On Nov. 25, Charles Schwab Corp. announced a monumental bid for its rival TD Ameritrade Holding Corp. — both major competitors of E*TRADE. Rumors of the deal days earlier shocked investors and analysts alike.

"Many in the industry were surprised to see that E*TRADE was not the subject of the announcement," said Goldman Sachs analyst William Nance, then asking E*TRADE CEO Michael Pizzi if his company is a willing seller.

Speaking at the Goldman Sachs US Financial Services Conference, Pizzi indicated that E*TRADE remains open to a possible buyout.

"It is my job to remain focused on the delivery of [our] EPS trajectory," Pizzi said, referencing the company's earnings goal of $6 per share by 2023 and $7 per share by 2024. "If someone wants to come in and discuss how to advance it, how to de-risk it, [and] how to deliver more value from it, we remain open to those dialogues."

Even though E*TRADE has long been a rumored takeout target, Pizzi said the company has not been approached with a buyout offer. That fact has not stopped analysts from speculating about which companies might be interested in a deal.

"Bigger is not always better," Pizzi said, adding that he remains optimistic about opportunities for E*TRADE in light of the industry's latest consolidation. "We can come out of this a clear winner."

The combined Schwab-TD Ameritrade would be a financial powerhouse controlling more than $5 trillion in client assets.

When asked how E*TRADE could compete against a competitor with such scale, Pizzi pointed to E*TRADE's operating margin, since the benefit of scale is not reflected in a company's operating margin.

"We look at the end of the third quarter, and we had the highest operating margin amongst the peer set," he said. "Even post the commission cuts, our operating margin will be north of 40% and trending higher as we execute our plan."

Also, given the massive integration effort that Schwab and TD Ameritrade will undertake if the deal ultimately succeeds, there will be disaffected customers that E*TRADE could capture.

"We're seeing one of the largest digital storefronts consolidate into another," Pizzi said. "That means you just get an overall mind share benefit of being an alternative provider."