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One month after brokerages, prompted by money-losing competitor Robinhood, dropped all transaction fees in hopes of gaining market share – a move which has yet to generate any material new users – this morning Fox Business reported that in a giant move amid discount online brokerages, Charles Schwab would buy TD Ameritrade for $26 billion. Both shares of TD Ameritrade and Schwab were sharply higher on the news, up 18% and 2.4% respectively, with other brokers up as well on the news (ETFC +2.5%, IBKR +2.1%).

TD Ameritrade CEO Tim Hockey, who announced in July that he would leave by the end of February, acknowledged last month that his firm’s decision to adopt zero commissions would prompt speculation about mergers.

“We will take a look at anything that makes financial and strategic sense,” he said in October outlining the company’s plans to make up for lost revenue of as much as $240 million a quarter from the new commission structure. “Scale is important. We have scale. We’re very comfortable with our earnings power now, even in this new environment.”

Last month, Schwab started a revolution in the retail brokerage space, when it announced it would eliminate almost all commissions for online trades, causing rivals E-Trade and Fidelity to follow suit. Eliminating the $4.95 per trade commission will cost Schwab $90 million to $100 million in quarterly revenue, or about 3 percent to 4 percent of its total.

Schwab stock had risen 7.8% this year, while TD Ameritrade has fallen 15.5%, although it appears set to erase losses with today’s move.

TD Ameritrade, which began as First Omaha Securities, was founded by Joe Ricketts in1975. In 1988, it became the first firm to let clients make trades by touch-tone phone, then went public three years later. TD bought Scottrade in a $4 billion cash-and-stock deal in 2016, tying up two major players in the industry.

While the news that Schwab is buying TD Ameritrade will be positive for possible acquisition target E*Trade, it may weigh on some asset managers as the combined company would be able to exert even more pressure on industry fees, according to Vital Knowledge’s Adam Crisafulli.

“The key for this industry is asset aggregation and that’s SCHW’s ultimate goal – it had $3.768t of client assets as of the last quarter and adding AMTD’s $1.3t would take the combined company to >$5t,” he said.

And while E*trade may be considered more of a deal target now, there aren’t many obvious buyers left if SCHW, AMTD combine, Crisafulli said, noting that industry consolidation “isn’t shocking,” and that AMTD was thought to be a potential buyer, perhaps of ETFC.

Equity futures pumped then dumped Thursday morning after China invited the top US trade negotiation team for a new round of talks in Beijing amid the latest warnings that the ”Phase One trade deal’ signing could be delayed until next year, reported the Wall Street Journal citing unnamed sources.

• 21-Nov-2019 05:09:48 AM – CHINA INVITES U.S. TRADE NEGOTIATORS FOR NEW ROUND OF FACE-TO-FACE TALKS -WALL STREET JOURNAL, CITING UNNAMED SOURCES
• 21-Nov-2019 05:11:13 AM – NEW U.S.-CHINA TRADE NEGOTIATIONS COULD TAKE PLACE IN BEIJING BEFORE U.S. THANKSGIVING HOLIDAY NEXT WEEK -WALL STREET JOURNAL

Unnamed sources said Chinese Vice Premier Liu He invited U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin for a meeting next week (there has been no confirmation on date).

The sources said Lighthizer and Mnuchin wouldn’t make the trip “unless China makes it clear that it would make commitments on intellectual-property protection, forced technology transfers, and agricultural purchases.”

E-Mini S&P 500, E-Mini Nasdaq 100, and E-Mini Russell 2000 pumped on the first headlines, but after further examination — are flat as it seems the WSJ pump isn’t working…

 

Authored by Vanand Meliksetian via OilPrice.com,

Turkey’s location has always given it a key geostrategic advantage. Its proximity to the Middle East and the Caspian as well as its position on the Black Sea make it an indispensable member of NATO. In recent years, however, Ankara’s diplomatic relations with its Western allies have cooled. Now, the discovery of major energy deposits in the Eastern Mediterranean are adding to tensions.

Cyprus is one of the countries that could benefit significantly from the new-found natural gas wealth. The island nation currently imports all of its energy, but the discovery of gas deposits could improve Cyprus’ energy security while at the same time making it an energy-exporting nation. Nicosia’s fraught relations with its large northern neighbor, however, could hamper the development of its energy sector.

The Turkish invasion of 1974 separated the island between an internationally recognized Cyprus and the Turkish Republic of Northern Cyprus which is only recognized by Turkey. To make matters even more complicated, Nicosia is a member of the EU while Ankara’s membership request is still pending. 

Turkey wants a share of the newfound energy wealth to go to the Turkish inhabitants of the island. Furthermore, Ankara has sent exploratory vessels to Nicosia’s EEZ which has evoked a sharp rebuke from the EU.

Brussels has made its position very clear, stating that Cyprus is an independent nation with widespread international recognition and that Turkey has repeatedly used force to deter energy companies from exploring the island nation’s EEZ.

Last week, the foreign ministers of the EU agreed on economic sanctions over Turkey’s actions in Cyprus’ waters. These include asset freezes and travel bans. Also, technical and material support for drilling activities is prohibited. The recent decision follows a previous round under which arms sales were banned following the country’s invasion of Syria.

But there is only so much the EU can do when it comes to influencing Ankara’s decision making. Turkey is sheltering approximately 3.5 million displaced persons. The EU is providing financial support to Ankara in exchange for preventing the continuation of the refugees’ journey to Europe. President Erdogan has already threatened to flood Europe with the displaced persons who for several years have called Turkey their “home”. According to some Greek officials, Ankara has the capability to immediately “send” 500,000 refugees over into Europe.

More importantly, thousands of detained ISIS fighters are currently in Turkish jails or under the supervision of Turkey-backed Arab fighters in Syria. Ankara is calling on European countries to allow the radicalized citizens to return to their country of origin to face trial there. Domestic political developments in several European countries, however, hamper the processing of “home-grown” Islamic terrorists.

Turkey is aware of its advantage vis-à-vis the EU and it is not shy of exploiting it. Erdogan has remained rebellious in the face of increased economic and political headwinds domestically and abroad. During a state visit to the U.S., Turkey’s president warned the EU that it could send a flood of refugees and detained terrorists across the border.

According to Erdogan:

“Turkey is not one of those countries you have come to know until now. We are a country that sits at the negotiating table with you.”

Ankara’s ascension talks with the EU have been in stalemate for years now and membership is increasingly looking like a fantasy.

It is unclear how Turkey will exploit potential gas discoveries when Western energy companies are not allowed to share technological know-how. Ankara could turn to Russia’s state-owned energy companies who are under Western sanctions themselves and therefore would be willing to make a deal with Ankara. However, Moscow historically has enjoyed good relations with Cyprus due to their shared Orthodox religion. Consequentially, it remains uncertain how Russia will play this geopolitical conundrum.

Realistically, Turkey’s options here are limited. Despite the fraught relations, the country remains a member of NATO and its most important economic partners are Western countries. Therefore, Ankara will most likely choose to deescalate before matters go out-of-hand.

Is the world’s largest hedge fund central bank finally starting to appreciate the devastating consequences of its asset reflating ways?

In some ways it is almost ludicrous to presume that a central bank which at the beginning of the year laughably “found” that its QE has reduced inequality in the eurozone…

The ECB also “found” that QE which has led to record inequality and unprecedented social upheaval has “reduced inequality” https://t.co/fOsAqWaqhf

— zerohedge (@zerohedge) January 30, 2019

… may have finally looked in the mirror objectively, and yet on Wednesday, it was the ECB which admitted that historically low eurozone interest rates – which it is solely responsible for – and which are expected to persist into the foreseeable future (and beyond) are causing increased risk-taking that could threaten financial stability.

“While the low interest rate environment supports the overall economy, we also note an increase in risk-taking which could… create financial stability challenges,” ECB vice-president Luis de Guindos said non-ironically in a statement… which to us sounds an awful close to a mea culpa. Then again, we know that central banks never admit responsibility for “increases in risk-taking” so we wonder if he was just trolling everyone.

Or perhaps he isn’t: “Signs of excessive risk-taking” were spotted by the Frankfurt central bank among non-bank financial players like “investment funds, insurance companies and pension funds.” Indeed, many “have increased their exposure to riskier segments of the corporate and sovereign sectors” the central bank said. Of course, it is the ECB’s own policy of negative yields has prompted investors to seek out riskier bets in search of returns.

Curiously, while the ECB’s twice-yearly update to its risk assessment shifted focus from May’s trade war concerns, “downside risks to global and euro area economic growth have increased” in the meantime, it warned. Such dangers included “persistent uncertainty, an escalation in trade protectionism, a no-deal Brexit and weak performance of emerging markets,” notably China, the ECB said.

In another stark admission of reality, the ECB said that an economic downturn – one which is virtually assured for Europe – could crash prices for riskier and less liquid assets as actors like asset managers or hedge funds sell up in a hurry.

“This may have implications for the ease and cost of corporate financing which could exacerbate any real economy downturn,” the ECB warned, adding that elsewhere in the economy, lower interest rates also “appear to be encouraging more borrowing by riskier firms” in non-financial sectors, as well as inflating property prices in some parts of the eurozone.

If only there was something the ECB could do to prevent this…

Alas it won’t, because returning to a far more familiar place, the ECB judged that authorities in the 19 eurozone countries were already taking steps to head off financial stability risks from property bubbles.

Meanwhile the central bank found that “bank profitability concerns remain prominent” as growth has weakened and eurozone policymakers further lowered a key interest rate in September. As well as outside pressure, banks “have made slow progress in addressing structural challenges.”

Here, for some odd reason, the ECB valiantly refuses to admit that keeping the yield curve consistently negative is catastrophic for bank profitability, and instead of admitting fault, the central banks points to silly diversions such as banks that do not have Apple apps. The central bank also points to “slow improvements” on multiple fronts to explain lack of bank profits, like disposing of so-called “non-performing” loans, where borrowers have fallen behind on payments.

Lenders must also cut costs and reduce overcapacity, and are largely failing to diversify their businesses, the ECB judged, effectively urging banks to keep firing people. Because it’s not like the Eurozone has an unemployment problem.

The good news according to the ECB: most banks have the liquid assets on hand to withstand any foreseeable financial shocks.

We’ll find out soon enough.