The brokerages, together with Kleiner Perkins Caufield & Byers, Trident Capital and Benchmark Capital, are forming the new, yet-unnamed firm that plans to distribute exclusively the equity securities it will underwrite once it is up and running.
The three brokerage firms, the venture partners, and the investment bank's management initially will own the company. The firm will be based in Silicon Valley and is expected to be up and running in early 2000, the companies said. Scott Ryles, formerly a managing director and head of Technology Investment Banking at Merrill Lynch, will serve as chief executive officer.
The move comes at a time when brokerages online and off are trying to distinguish themselves in the face of increased competition. Nearly all Net brokers have been tripping over each other to offer after-hours trading, lower transaction fees, cell phone trading and other incentives.
The deal is not the first to team brokerages with other financial firms in the face of increased competition. Just last month, technology investment bank Hambrecht & Quist agreed to let Ameritrade sell H&Q lead-managed initial public offerings. H&Q already had a similar deal with Schwab.
With today's agreement Schwab, Ameritrade and TD Waterhouse are aiming to tackle Wall Street's underwriting giants Morgan Stanley Dean Witter, Merrill Lynch and Goldman Sachs. The new company plans to focus on underwriting, managing and distributing equity offerings for information technology and Internet companies. The firm also plans to invest in later-stage private companies.
Individual investors have increasingly complained that they have been shut out of the hot IPO market because investment banks that underwrite IPOs offer the bulk of the shares coming to the market to institutional investors.
"We know our customers and the investment managers we serve want a bigger share of the IPO pie," David Pottruck, president of Schwab, said in a statement. "This partnership is intended to give us a greater allocation of IPO shares, and provide our customers with greater access to deals."
The three brokerages that are part of the bank currently serve about 4.5 million accounts--representing more than 50 percent of the active online investor accounts, which in turn represents nearly $750 billion in overall customer assets.
"This new firm, through its relationship with Schwab, TD Waterhouse and Ameritrade, will be designed to respond to online investor demand for new issues, which to date has not been fully satisfied by the traditional offering process," Ryles said in a statement. "This bank, together with the online brokers, will seek IPO pricing that better reflects the total underlying investor interest in pending IPOs."
The new firm also plans to provide research to individual and institutional investors and, eventually, private placement and strategic advisory services to companies planning to go public.