Financial services firm Charles Schwab announced that it will lay off 1,000 employees a few weeks after completing its merger with TD Ameritrade.
According to Charles Schwab, the job cuts are part of an initiative to "reduce overlapping or redundant roles" across both firms following the TD Ameritrade merger.
Redundancy and job cuts
In a statement to employees, the Schwab Executive Council said: "We have begun notifying individuals that their roles have been eliminated and they will be leaving the firm. This will result in a reduction of approximately 1,000 positions or about 3% of the combined workforce of Charles Schwab and TD Ameritrade."
However, Charles Schwab did not specify which teams and roles will be affected by the layoffs.
The financial company assured that this will be the only job cuts it will undertake in 2020 and claimed that it "continue to hire in strategic areas critical to support our growing client base."
The Schwab Executive Council also mentioned that the firm has over 1,000 positions open and that workers who lost their jobs will be given early access to these new and open positions within the company.
Additionally, they will be treated as internal candidates for the roles, but only within a 60-day notice period.
Charles Schwab acquires TD Ameritrade
Talks about the possibility of a merger between Charles Schwab started last year. News of a possible deal emerged after both companies announced plans to eliminate commissions for most online trades.
The removal of commissions for online trading would greatly benefit customers but analysts and investors were wondering how the companies were going to recover from the loss of these revenues.
Schwab decided to go zero commission several days after smaller rival Interactive Brokers Group announced that it was ending commissions. Schwab’s decision started an immediate price war and other brokerage firms followed suit, including TD Ameritrade, E-Trade, Fidelity, and Ally Invest.
The trend toward zero commission trading can be attributed to competition from Robinhood, a trading app popular with millennials that launched a few years ago with a no commission business model.
In an interview in October 2019, TD Ameritrade chief executive officer (CEO) Tim Hockey hinted on the possibility of selling the company. Hockey said: "We will always take a look at something that makes strategic sense."
Bill Capuzzi, CEO of Apex Clearing, a custodian firm that holds securities for brokerages, pointed out: "On the heels of all the zero-commission announcements, this was the inevitable next shoe to drop. A merger would make a lot of sense."
Capuzzi argued that a merger would have the potential for massive cost savings because of overlap in their respective businesses but it would also mean employee layoffs.
Following the reports, Schwab shares went up by 7% in early trading while TD Ameritrade’s stock surged by more than 15%. Meanwhile, Interactive Brokers Group’s stock went down slightly and E-Trade’s shares fell by more than 6%.
The decline in E-Trade shares is attributed to the perception that the firm could be the odd man out in the merger process. Prior to these reports, it has been speculated for years that E-Trade could be a good fit for Schwab.
