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One Step Closer to E*AmeriSchwab

I wasn't completely serious when I coined the term E*AmeriSchwab -- a combination of the three leading discount brokers in a perpetually consolidating industry -- earlier this year. Apparently, I also wasn't completely off the mark.

This morning's Wall Street Journal claims that TD AMERITRADE (Nasdaq: AMTD  ) and E*Trade (Nasdaq: ETFC  ) have been in merger talks for weeks. If successful, the pairing would create a discount-broker behemoth with a combined 11 million brokerage and banking accounts. Leader Charles Schwab (Nasdaq: SCHW  ) watches over just 6.9 million accounts. In short, TD AMERITRADE and E*Trade would be a giant in what was once a highly fragmented niche.

This would normally lead one to believe that the deal would draw as much regulatory opposition as recent proposed combinations in satellite radio and organic grocery chains. I wouldn't bet on it.

Banking giants Bank of America (NYSE: BAC  ) and Wells Fargo (NYSE: WFC  ) made waves several months ago, offering zero-commission trading to customers with minimum banking relationships. came out of nowhere last year, also offering free stock trades.

So even with a combined market cap of just more than $16.5 billion as of this morning, the two companies would still be a small fish when pitted against the banking heavies that are trying to expand their retail brokerage reach. It would also be an opportunistic grab for TD AMERITRADE, as investors are weighing down shares of E*Trade over its mortgage operations.

If anything, the only real surprising thing about the news is the timing. Folks have been speculating about a merger for ages, but it was starting to seem unlikely. Toronto Dominion (NYSE: TD  ) , the parent company of TD Waterhouse before selling it off to Ameritrade two years ago for a 39% stake in the venture, may not want to dilute its position further.

Then you have TD AMERITRADE CEO Joe Moglia, who noted that his company has an "absolute focus on organic growth" during last month's earnings report.

Ah, wait. I get it now. Moglia meant "organic growth" as in the way that Whole Foods Market (Nasdaq: WFMI  ) is trying to grow in the organic retail market by snapping up its closest competitor.

Clever, Moglia. Clever.

More financial Foolishness:

In the market for a new discount broker? The way rates and initial deposits are bouncing around, I can't say I blame you. Check the sponsored-broker comparison table in the Discount Broker Center to see if you can find the bargain-minded brokerage outfit that's right for you.

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Longtime Fool contributor Rick Munarriz believes in self-service gasoline pumps and self-service stock brokerages. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. Bank of America is an Income Investor pick. The Fool has a disclosure policy.

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10/21/2016 4:00 PM
AMTD $37.08 Up +0.44 +1.20%
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