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Capital Markets

Brokerage consolidation: Trading places

Merger talks between E*Trade and TD Ameritrade could be a sign of things to come.

Talks between rival discount brokers E*Trade and TD Ameritrade about a possible $20 billion merger have rekindled speculation that further consolidation among US retail brokerages could be on the cards.

The news of the talks comes about three months after AG Edwards, the largest independent regional brokerage in the US, agreed to sell to Wachovia for $6.8 billion, to create the country’s second-biggest brokerage house. With a combined $1.1 trillion in customer assets and 1,512 offices, the new Wachovia Securities is bigger than Citi’s US brokerage and second only to Merrill Lynch.

Wachovia combined its securities unit with that of Prudential Financial in a joint venture in 2003 that transformed it into a big player, and Citi expanded its US brokerage business two years ago by swapping its asset management division for the brokerage unit of Legg Mason.

It is not the first time that E*Trade has held talks with the management of TD Ameritrade, and some analysts are unconvinced that the current discussions will be any more successful this time around. E*Trade tried unsuccessfully to acquire Ameritrade in 2005 but was spurned by Ameritrade in favour of a merger with TD Waterhouse, owned by Canada’s Toronto Dominion Bank, which became the combined TD Ameritrade’s largest shareholder, owning 40%.

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