The San Francisco-based broker is throwing cold water on speculation that it could use some of the cash it's getting from the sale of its U.S. Trust business to buy an online competitor such as E*Trade (ET - Get Report) or TD Ameritrade (AMTD - Get Report).
Speaking at a Monday evening investor conference, CEO Charles Schwab says there's little value in buying another online firm. He says such deal would cost well over $10 billion.
The market caps of both E*Trade and Ameritrade are about $10 billion.Instead, Schwab says he's interested in getting into the 401K administration business, or using some of the proceeds from the U.S. Trust sale to continue buying back the discount broker's shares. Schwab's comments about the prospects for an online acquisition came as a surprise, says Brad Hintz, a Bernstein analyst, in a recent note. The news also seemed to surprise investors banking on a possible buyout of E*Trade or Ameritrade. In midday trading Tuesday, shares of both online firms were trading down, with Ameritrade falling 13 cents to $16.75 and E*Trade sliding 39 cents, or 1.6%, to $23.09 Shares of Schwab, meanwhile, are trading higher, rising 11 cents to $18.59. Two weeks ago, Schwab announced it was selling its U.S. Trust asset management business to Bank of America (BAC). Schwab, which acquired the asset manager in a deal valued at $2.7 billion some six year ago, expects to record a pretax gain of $1.9 billion from the sale.