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Schwab mulls bank buy
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June 5, 2001: 3:48 p.m. ET
Top U.S. discount broker considering buying bank to offer more services
By Staff Writer Luisa Beltran
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NEW YORK (CNNfn) - Charles Schwab Corp., the nation's top discount broker, is considering acquiring a bank or partnering with another firm for a possible purchase, a spokesman told CNNfn.com.
Schwab hopes to offer bank-like services, such as FDIC insurance and overdraft protection, and is considering a purchase to expand that business. There is no timeline for a possible purchase, said Schwab spokesman Lance Berg.
"We are taking the time now to review the possibility," Berg said. "We are looking at what is the best way to approach this, either developing something ourselves or through an acquisition."
However, San Francisco-based Schwab is definitely considering providing bank-like services. The discount broker currently offers checking account services through SchwabOne and Schwab Access.
The possible acquisition plans follow comments made by founder Charles Schwab at an analyst conference in May where he admitted considering a purchase.
Similar to rival E*Trade Group, Schwab has suffered during the broadmarket downturn. In January, Schwab imposed huge cost-cutting efforts, including telling employees to take mandatory vacation days. In April, Schwab reported that total client average daily trades fell 39 percent to 235,000.
Shares for Schwab (SCH: up $1.01 to $19.46, Research, Estimates) have also dropped more than 50 percent from a 52-week high of $40.43. E*Trade (ET: up $0.18 to $8.00, Research, Estimates) has plummeted nearly 60 percent from its year high of $20.18.
Schwab, which acquired U.S. Trust in a $2.7 billion purchase in January 2000, is straddling two different strategies, said analyst Meredith Whitney of First Union Securities Inc.
Schwab's discount brokerage caters to low-end consumers while its U.S. Trust business targets high-wealth individuals.
"Who are they?" she said. "The market for online trading, exclusively, is small."
The switch to offer banking services is not surprising, Whitney said. Schwab is looking to follow the lead of E*Trade Group which bought TeleBanc for $1.8 billion in stock in 1999. The purchase allowed Menlo Park, Calif.-based E*Trade to offer a wider slate of financial services online, including the purchase of mutual funds, certificate of deposit and bill payment.
"They are just developing more revenue streams," she said of Schwab. "Longer term their business is changing away from a transaction business model toward a traditional banking model which begets lower multiple."
It was unclear where Schwab would be looking, but potential targets could include any of the Silicon Valley banks such as Silicon Valley Bancshares.
"They have pretty broad geographic [coverage] through their branch system. I don't know if they want to complement this through their branches or funding capabilities," Whitney said. 
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