Will TD Ameritrade or Charles Schwab Buy Up E*Trade?

Includes: AMTD, ETFC, SCHW
by: Kelvin Schulle

The economy is recovering and the stock market is picking up. It is time for TD Ameritrade (NASDAQ:AMTD) and Charles Schwab (NYSE:SCHW) to grab more market share. One acquisition target recently talked about is E*Trade (NASDAQ:ETFC).

E*Trade has been under pressure due to its mortgage business. The stock is trading a little over $1.5 on Friday. Wall Street investors piled in to short the stock since 2008, and according to Nasdaq short interest report, ETFC has over 36% short interest as of 8/28/09, the highest among the SP500. However, several positive things are happening with this company for the moment. Its debt conversion program was approved by shareholders, housing prices are coming back slowly (a likely boost to its mortgage department), and trading actiivity is picking up speed lately, which usually is a good sign that its core business is in good shape.

Investors have been pushing AIG (NYSE:AIG) and Citigroup (NYSE:C) shares to rally because of the housing stabilization. E*Trade has over 15% market share based on the number of accounts. With E*Trade trading at such a low price, it is a steal for competitors to grab if they can. The rumors got one step closer to reality recently after CEO Layton said on 8/19 that E*Trade has always been approached with "vague ideas" from suitors regarding a potential deal, but the company has nothing to report.

Having said that, it may not be up to E*Trade to resist if shareholders' values are justified by a proper offer. For the long term, E*Trade should be a winner.

Disclosure: Author is long SCHW