If you're an online discount broker, you love to see frenetic trading. Buying and selling is sweet music. However, what happens when it's the brokers who are doing the wheeling and dealing?
This morning found Charles Schwab
Let's take a quick look at both deals to see how they aren't all that different. Schwab's U.S. Trust will be combined with The Private Bank at Bank of America to form a wealth-management business watching over a whopping $261 billion in well-heeled assets. It's a sound move for Bank of America, but it's also a practical one for Schwab. Through the first nine months of the year, U.S. Trust had accounted for 17% of Schwab revenues but only 10% of its pre-tax profits. In other words, the divestiture will help improve margins at the pioneering discount broker.
As for Ameritrade, it had announced a buyback of 12 million shares over the summer. Today it's broadening that program to ultimately reacquire 32 million shares. This isn't just lip service as you sometimes find with companies that announce repurchases and then drag their feet. In just the past three months since the original buyback was announced, Ameritrade has bought up roughly 9.7 million shares.
It's easy to understand why Ameritrade is so hungry. Over the past year, its stock has fallen while shares of rivals Schwab and E*Trade
Bringing the Schwab and Ameritrade actions full circle, Schwab may decide to use some of the $2.5 billion in after-tax proceeds stemming from the sale for share repurchases too. Investors may want to respect that kind of statement. When two industry bellwethers are busy snapping up their own shares, it's easy to interpret that as a vote of future confidence. Follow suit and buy in? Ahhh, that's the sound of sweet trading music to the brokers again.
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Bank of America is an Income Investor recommendation, while Schwab is a Stock Advisor selection. Longtime Fool contributor Rick Munarriz has been trading exclusively through discount brokers since 1990, but he does not own shares in any of the companies in this story. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool has a disclosure policy.