Referral agreement will pair complementary cultures with a shared commitment to serviceTransaction adds to Schwab’s scale advantage with addition of over 1M accounts, $90B in assets
July 25, 2019 — SAN FRANCISCO & SAN ANTONIO–(BUSINESS WIRE)–The Charles Schwab Corporation announced today that it has entered into a definitive agreement to acquire assets of USAA’s Investment Management Company, including brokerage and managed portfolio accounts for $1.8B in cash. The companies have also agreed to enter into a long-term referral agreement, effective at closing of the acquisition, that would make Schwab the exclusive wealth management and brokerage provider for USAA members.
Walt Bettinger, president and CEO of Schwab, said, “We are honored to be entrusted with serving the financial needs of USAA’s members. We have long admired USAA’s mission to enhance the financial security of our country’s military service men and women and their families. Both of our companies share a commitment to integrity and service, and both have strong track records of achievement for those we serve, which is why we believe this relationship makes so much sense for everyone involved.”
Stuart Parker, CEO of USAA, said, “Our mission is to facilitate the financial security of the military community through highly competitive products. This agreement with Schwab can help enhance our members’ financial futures with a client-first approach that offers access to more choices in investment products. We are committed to making this a seamless transition for members and providing opportunities for employees. USAA remains focused on providing award-winning customer service and advice on products and services across property and casualty, banking and life insurance.”
For Schwab, the transaction helps add scale to its $1.9T Investor Services business through the addition of over 1M new accounts and approximately $90B in client assets. Scale is a competitive advantage for Schwab, and helps Schwab to deliver a strong value proposition to clients. The transaction also provides Schwab an opportunity to serve USAA members as their exclusive wealth management and brokerage provider, through the long-term referral agreement.
The transaction has been approved by the Boards of Directors of both companies and is expected to close during 2020, subject to customary regulatory approvals and conditions. The conversion of USAA’s brokerage services and managed portfolio accounts to Schwab’s platform will occur at the close of the transaction.
Schwab expects the transaction to be modestly accretive to EPS on a cash basis by year one and on a GAAP basis by year two. Some revenue synergies are expected from the transaction, primarily driven by the migration of client cash to the Schwab balance sheet. Expense synergies are expected from a reduction of clearing fees and other operating expenses. The transaction will be funded with available parent company cash. Schwab expects to have sufficient capital at the time of closing for pro forma Tier 1 Leverage ratio to remain in line with its 6.75%-7% target range.
Credit Suisse Securities (USA) LLC served as financial advisor and Davis Polk & Wardwell LLP acted as legal advisor to The Charles Schwab Corporation. Goldman Sachs & Co. LLC served as financial advisor and Simpson Thacher & Bartlett LLP acted as legal advisor to USAA.
Through this relationship, USAA members will benefit from Schwab’s scale and its “no trade-offs” approach to investing, which includes a combination of:
- Great Service: Schwab offers 24/7/365 support from representatives who are consistently recognized for their service.
- Low Costs: Schwab’s scale allows it to deliver products and services with among the lowest costs in the industry and no brokerage accounts minimums1.
- A Modern Approach: An investing experience that brings together the best of people and technology to help make investing easier.
- Choices: A broad range of investment products and services to help investors meet their individual goals.
- Guarantees: Schwab provides both a security guarantee and a Satisfaction Guarantee2.
Bettinger continued, “We know USAA’s talented employees have set a high bar for its members. We believe Schwab’s commitment to value, service, transparency, and trust strongly aligns to the USAA community’s expectations.”
Schwab plans to offer roles to a significant number of USAA employees to continue to serve its members.
A conference call with Schwab executives to discuss the announced transaction will be held tomorrow, July 26, 2019 at 10:00 AM Eastern Standard Time. Access via webcast is available at www.schwabevents.com/corporation.
1 Schwab organization accounts do have a minimum to open.
2 If you are not completely satisfied for any reason, at your request Charles Schwab & Co., Inc. (“Schwab”), Charles Schwab Bank (“Schwab Bank”), or another Schwab affiliate, as applicable, will refund any eligible fee related to your concern within the timeframes described below. Two kinds of “Fees” are eligible for this guarantee: (1) Program Fees” for the Schwab Private Client (“SPC”), Schwab Managed Portfolios (“SMP”), Schwab Intelligent Portfolios Premium (“SIP Premium”), and Managed Account Connection (“Connection”) investment advisory services sponsored by Schwab (together, the “Participating Services”); and (2) commissions and fees listed in the Charles Schwab Pricing Guide for Individual Investors (“Account Fees”) or the Charles Schwab Bank Pricing Guide. Program Fee refund requests must be received no later than the next calendar quarter after the Fee was charged. Account Fee refund requests must be received within one year of the date that the Fee was charged.
About Charles Schwab
The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 365 offices and 12.0 million active brokerage accounts, 1.7 million corporate retirement plan participants, 1.3 million banking accounts, and $3.70 trillion in client assets as of June 30, 2019. Through its operating subsidiaries, the company provides a full range of wealth management, securities brokerage, banking, asset management, custody, and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and lending services and products.
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The USAA family of companies provides insurance, banking, investments, retirement products and advice to more than 13 million current and former members of the U.S. military and their families. Known for its legendary commitment to its members, USAA is consistently recognized for outstanding service, employee well-being and financial strength. USAA membership is open to all who are serving our nation in the U.S. military or have received a discharge type of Honorable – and their eligible family members. Founded in 1922, USAA is headquartered in San Antonio. For more information about USAA, follow us on Facebook or Twitter @USAA, or visit USAA.com.