In a move that will further solidify its position as the nation's largest discount stockbrokerage, Charles Schwab & Co. said Wednesday that it has agreed in principle to acquire Rose & Co., Chase Manhattan Corp.'s discount brokerage subsidiary.
The deal, for which terms were not disclosed, will continue a trend of consolidation in the discount brokerage business, where the top national firms have gained increasing market shares at the expense of smaller, regional firms. That trend has continued since the October, 1987, stock market crash, although San Francisco-based Schwab and other larger firms also have had to cut employment and other costs amid reduced trading volume. Further mergers and consolidations are expected, analysts say.
Less Profitable Than Once Thought
The merger is yet another indication of how major banks have found that offering discount brokerage services to their banking customers is not as profitable or synergistic as previously hoped. That realization prompted New York-based Chase, the nation's second-largest banking firm, to disclose late last year that it was considering selling Chicago-based Rose, which it acquired in 1983. Merger talks between Schwab and Rose, one of the nation's 10 largest discounters, were first disclosed in January.
Schwab itself was spun off by BankAmerica Corp. in 1986, while Security Pacific Corp. has sought buyers for its discount brokerage unit.
The move also will combine two of the pioneering firms in discount brokerage, although Rose--which is about one-tenth the size of Schwab--is generally regarded as charging somewhat lower commissions than Schwab and has a higher proportion of actively trading customers, said Mark D. Coler, president of Mercer Financial Services, a New York firm that rates discount brokerage services.
"It's a significant merger, but it won't change the structure of the industry," Coler said.
Will Get Schwab Name
Hugo Quackenbush, a Schwab senior vice president, said his firm was attracted to Rose because it, like Schwab, is a pure brokerage with no clearing or market-making functions.
"We see an opportunity in servicing Rose customers with a broad range of products," Quackenbush said. Schwab plans to consolidate Rose's operations under the Schwab name, he said.
The merger is still subject to regulatory approvals and a definitive agreement, which is expected to be signed next week, Quackenbush said.
Schwab and Rose would not disclose the price tag for the deal, but analysts have speculated that Rose could fetch about $20 million, close to its book value, or net worth.
Schwab, with 109 offices nationwide and about 2,360 employees, posted profits of $7.4 million last year on revenue of $392 million. Rose has 10 offices, including one in Los Angeles, and about 120 employees.