E*Trade on online brokerage industry consolidation (quotes from 1Q05 conf call)

Until now, Ameritrade (ticker: AMTD) has been the key consolidator in the online brokerage industry. E*Trade (ticker: ET) was reportedly in talks with TD Waterhouse, but they fell apart. E*Trade CEO Mitch Caplan outlined the case for consolidation on his Q1 earnings call:

Clearly when you look at the industry it's ripe for consolidation. …we are all in the financial services sector. The products are becoming increasingly monetized and so the operating margins continued to widen because we create efficiency… With that said you recognize that if you put two companies together that are doing the same thing you can generate significant expense synergies. Also… you can try to create more in value with cash on the balance sheet as well as [with] lending products. There are revenue synergies. So when you look at the opportunity for consolidation there's very little doubt that you create significant shareholder wealth. I suspect it will happen.

When it will happen exactly is unclear. I think certainly we recognize the value of consolidation and would welcome the opportunity to participate . And as we look forward one of the things that I hope may be helpful is that if you are in a little bit more difficult macroeconomic environment in the equity markets and that put pressure on people’s numbers, then there may be an increased opportunity for consolidation, hopefully in the midterm.

(Quotes are from the CCBN StreetEvents transcript.)