Charles Schwab to Buy 2 Canadian Firms

Charles Schwab Corp., the world’s largest discount brokerage, said Monday it was entering the Canadian market with the purchase of small Toronto-based discount broker Priority Brokerage Inc. and its full-service sister firm, Porthmeor Securities Inc.

In an ironic twist, the Schwab announcement was made shortly after Canadian Finance Minister Paul Martin blocked the proposed mergers of Royal Bank of Canada and Bank of Montreal and of Toronto-Dominion Bank and Canadian Imperial Bank of Commerce, saying they would place too much of the country’s banking business in the hands of two mega-banks.

Canada’s biggest banks will have to look for different ways to remain profitable. Though the large strategic alliances were ruled out by Martin, analysts still believe the banks could snap back into merger mode, forming alliances with other asset management companies in Canada and discount brokerages in other countries and taking part in joint ventures and takeovers of banks in other countries.

Meanwhile, San Francisco-based Schwab, with $460 billion in 5.4 million customer accounts, announced its plan to expand into the Canadian market. Terms of the deal were undisclosed. Priority would be renamed Charles Schwab Canada, officials said.

The proposed acquisitions are the latest in Schwab’s bid to create an international brokerage firm with expertise in both discount brokerage and financial services over the Internet.

Schwab is currently in talks with several Japanese companies about a brokerage venture in Asia’s largest market, and it owns Britain’s largest discount broker.

All the big Canadian banks have substantial brokerage assets. Toronto-based TD Green Line Investor Services, owned by Toronto-Dominion, is the world’s second-largest discount broker after Schwab, with 2 million customers and $75 billion in assets.

Schwab’s proposed move into Canada was widely seen as a natural evolution in the business, as a dozen or so larger U.S. brokerage firms are considering entering the relatively small Canadian market.

“It’s a wide open world. I guess Martin doesn’t see it that way,” Hugh Brown, analyst at Nesbitt Burns, said.

Schwab’s proposed acquisition of the Canadian brokerage, which holds $120 million in customer assets, comes after America’s largest full-service broker, Merrill Lynch & Co., agreed in June to buy Canada’s largest independent broker, Midland Walwyn Inc., for about $830 million in stock.

Schwab’s Canadian unit would join its foreign operations in London and Hong Kong. The company would offer a range of services from self-service Internet trading to full-service investing, said Paul Bates, the new company’s president and a former head of TD Green Line.

Charles Schwab shares were up $2.19 to close at $41.56 on the New York Stock Exchange.