Schwab Completes Buyout of Brokerage From B of A

Charles R. Schwab, with considerable help from Los Angeles’ Security Pacific National Bank, on Tuesday completed the $280-million buyback of his discount brokerage firm from BankAmerica.

The leveraged buyout was accomplished by a group of investors known as CL Acquisition Corp., led by Schwab, senior managers of his firm and brokerage employees.

The deal ends an unhappy four-year relationship between the driven, individualistic entrepreneur and the bureaucratic BankAmerica, parent of Bank of America, the nation’s second-largest bank. BankAmerica bought Charles Schwab & Co., one of America’s most successful discount brokerages, in 1983 for $57 million.

Security Pacific led a syndicate of seven banks that financed the buyback and will get a small piece of any increase in the firm’s future value.

BankAmerica gets $175 million in cash, $105 million in bonds and the right to 15% of the appreciation of the new company’s stock over the next eight years.

In addition to the debt financing, the new company has raised equity capital of $25 million through a private offering of $19 million of voting common stock and $6 million of non-voting preferred stock purchased by an affiliate of Security Pacific.

The Security Pacific preferred can be exchanged at the option of CL Acquisition for junior subordinated debt.

Schwab, the nation’s largest discount brokerage company with more than 100 branch offices, is highly profitable and is considered a leader in financial services.