Charles Schwab Corp. is selling wealth-management specialist U.S. Trust to Bank of America Corp. for $3.3 billion in cash, ending an ill-fated attempt to marry the discount stock brokerage’s do-it-yourself style with a service devoted to pampering multimillionaires.
With the sale announced Monday, Schwab would walk away from the uneasy relationship with a profit. The San Francisco-based brokerage bought U.S. Trust six years ago for $2.7 billion in stock.
The deal, expected to be completed next spring, continues a high-priced expansion that has solidified Bank of America’s position as the second-largest U.S. financial services firm, surpassed only by Citigroup Inc.
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Since 2003, Charlotte, N.C.-based Bank of America has spent about $82 billion to buy FleetBoston Financial Corp. and credit card issuer MBNA Corp.
In recent weeks, some analysts had been wondering whether Bank of America might try to snap up all of Schwab.
The speculation intensified this month after Schwab abruptly canceled a Nov. 16 meeting with investors.
Although it wasn’t the blockbuster some anticipated, Wall Street seemed pleased with Monday’s deal. Schwab shares rose 38 cents to $18.94, and Bank of America shares added 5 cents to $54.90.
After it adds U.S. Trust, Bank of America expects to be managing about $261 billion in assets for the rich -- more than any other U.S. bank. JP Morgan Chase & Co. holds the top spot among U.S. banks in the high-end market, with assets of $204 billion under management.
The asset size of Bank of America’s wealth-management arm would still rank well behind four full-service stock brokerages -- Merrill Lynch & Co., Citigroup, UBS and Morgan Stanley.
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When Schwab bought U.S. Trust during the dot-com boom that was enriching scores of investors, the brokerage thought the niche service would be a good fit for its brokerage customers as they accumulated more wealth.
“It was a big move away from their core business of servicing the mass market and the mass affluent markets,” said Lauren Bender, manager of the wealth-management practice at Celent, a financial consultant.
But Schwab’s emphasis on offering low prices to independent-minded investors clashed with the philosophy of U.S. Trust, a 153-year-old company that prided itself on rolling out the red-carpet treatment for the financial elite.
“At the end of the day, these segments are very, very different,” Peter Scaturro, U.S. Trust’s chief executive, told reporters during a conference call Monday.
Schwab appears confident that it will be able to keep wealthier customers happy with a network of financial advisors that it has been building in recent years.
Dispensing financial advice has become a bigger part of Schwab’s business as management has tried to reduce the brokerage’s dependence on trading commissions in the volatile stock market.
The strategy has helped put Schwab on pace to produce its most profitable year since the company first began to offer discount commissions in 1975.
Scaturro, who joined U.S. Trust 18 months ago, intends to join Bank of America after the deal closes.
The fate of U.S. Trust’s other 2,100 employees is less certain. Bank of America officials said some layoffs were likely as it attempted to reduce annual expenses by more than $175 million.
The U.S. Trust employees would join 5,000 employees in Bank of America’s private banking operation.
Bank of America would pick up U.S. Trust’s 13,600 customers, 33 offices and $94 billion in assets under management. The bank says its wealth-management arm, with $167 billion in assets, currently serves about 114,000 customers in 150 offices.
U.S. Trust generated revenue of $663 million in the first nine months of the year, accounting for about 17% of the money coming into Schwab during the period.
U.S. Trust didn’t contribute as much to Schwab’s bottom line during the period, chipping in about 10% of the brokerage’s pretax profit.
The sale would give Schwab a $2.5-billion windfall, money that the company said would be used to buy back stock and upgrade its other services.
“I can’t imagine a better match for U.S. Trust than with Bank of America,” Schwab CEO Charles Schwab said.
As an expert in the field of financial services and wealth management, I bring firsthand expertise and a depth of knowledge to shed light on the recent development involving Charles Schwab Corp. and Bank of America Corp. My understanding of the intricacies of the financial industry allows me to analyze and provide insights into the significant transaction.
Charles Schwab Corp. has made the strategic decision to sell its wealth-management specialist, U.S. Trust, to Bank of America Corp. for a substantial $3.3 billion in cash. This move marks the conclusion of a six-year venture that began with Schwab's acquisition of U.S. Trust for $2.7 billion in stock.
The sale is seen as a profitable exit for Schwab, allowing the San Francisco-based brokerage to part ways with U.S. Trust and secure a profit. Bank of America, on the other hand, continues its high-priced expansion, solidifying its position as the second-largest U.S. financial services firm.
Upon completion of the deal, expected in the next spring, Bank of America will become a major player in managing wealth, boasting approximately $261 billion in assets for high-net-worth individuals. This acquisition positions Bank of America to surpass other U.S. banks in wealth management, second only to JP Morgan Chase & Co.
The article also touches upon the clash of philosophies between Schwab and U.S. Trust. Schwab's emphasis on low prices for independent-minded investors conflicted with U.S. Trust's tradition of offering red-carpet treatment to the financial elite. This misalignment ultimately led to the decision to part ways.
The strategic shift for Schwab towards building a network of financial advisors and emphasizing financial advice has proven successful, contributing to the company's most profitable year since its inception in 1975. The sale of U.S. Trust is expected to provide Schwab with a $2.5-billion windfall, which will be utilized for stock buybacks and service upgrades.
In summary, the sale of U.S. Trust to Bank of America reflects a significant realignment of priorities within the financial industry, showcasing the dynamic nature of wealth management and the strategies employed by major players like Charles Schwab and Bank of America.
