Online brokerage E*Trade Financial Corp is believed to be in merger talks with Charles Schwab Corp (SCHW.O: Quote, Profile, Research) and TD Ameritrade Holding Corp, according to a report on Friday on business news channel CNBC.
An E*Trade spokesperson declined to comment, and a spokesperson for TD Ameritrade said the company has been pursuing growth through mergers and acquisitions but would not comment on E*Trade specifically. Charles Schwab also declined to comment.
Earlier this month Charles Schwab Chief Executive Charles Schwab said the company was interested in buying additional client accounts.
And TD Ameritrade Chief Executive Joe Moglia recently said on CNBC that it has previously talked with E*Trade, but declined to be more specific. The company, which holds about 16 percent of the market share by client assets, has long been considered a potential merger partner for E*Trade.
In June, two activist hedge funds that own about 8 percent of TD Ameritrade urged the brokerage to consider a sale or merger with either E*Trade or Charles Schwab.
Analysts said E*Trade will have to pursue strategic alternatives, such as a deal or sale of some assets, after large losses in its mortgage business. However, its complex balance sheet, which combines banking and brokerage assets, will make it tough to split the two businesses.
E*Trade's bet on the mortgage business, which seemed so smart just a few years ago, has destroyed the firm's profitability, said Octavio Marenzi, chief executive of Celent, a Boston-based financial research and consulting firm. Selling the firm is about the only strategic alternative left at this stage, he added.
E*Trade's shares, which have been crushed by its mounting credit losses, were up 24.4 percent to $5.30 in early afternoon trade.
Earlier this month the shares fell almost 60 percent, hitting a 5-year low of $3.46, after the company withdrew a 2007 earnings forecast, projected further write-downs on a $3 billion asset-backed securities portfolio, and said the U.S. Securities and Exchange Commission had begun an informal inquiry into its loan and securities portfolio.
TD Ameritrade's shares were up 5.25 percent to $19.03 on Friday, and Charles Schwab shares were 2.85 percent higher at $23.46.