Schwab purchase of USAA investment management assets to add 1M accounts
Amid reorganization of its executive team, Charles Schwab announced it is buying the brokerage and managed portfolio accounts of USAA’s investment management company for $1.8 billion in cash.
The deal will add 1 million accounts and $90 billion in assets to the brokerage's platform. Schwab will also serve as the exclusive wealth management and brokerage provider for USAA members, the company says.
Bringing custody in-house for these accounts was likely a key component of the reasoning behind the deal, according to an equity research report written by analysts at William Blair before it was officially announced.
The news confirms a report by The Wall Street Journal earlier this month that Schwab would purchase these assets for approximately $2 billion.
Schwab says it plans to offer roles to a “significant number of USAA employees” to continue serving its members. However, USAA spokesman Matthew Hartwig specified the brokerage intends to offer roles to at least 400 USAA employees.
USAA will consider an additional 400 employees for other roles. Still, approximately 350 employees may lose their jobs due to the deal, Hartwig said in an email.
The decision marks a shift for firm, which has largely ridden its equity-fund offerings.July 17
More than one-third of the $1 billion new assets on the digital advice platform are from new clients.July 16
The brokerage may pay about $2 billion for the additional advisory clients, according to reports.July 15
“USAA employees who do not join Schwab or the USAA Life Company or are not offered a new position within USAA will be treated with great care and receive dedicated support through a range of benefits and transition services,” he said in an emailed statement.
The transaction is expected to close in 2020, subject to customary regulatory approvals and conditions, according to the companies. Conversion of USAA’s brokerage services and managed portfolio accounts to Schwab’s platform will occur after the close.
The deal follows a reorganization within Schwab’s leadership team, where two executives will leave the firm this week. Schwab says it 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, according to the company.
A Schwab spokeswoman did not respond to an immediate request for additional comment.
USAA services more than 13 million current and former members of the U.S. military and their families, according to the company.
“We have long admired USAA’s mission to enhance the financial security of our country’s military service men and women and their families,” said Schwab CEO Walt Bettinger in a statement.