Good morning, ladies and gentlemen. Welcome to the TD Bank Group's conference call concerning Schwab's acquisition of TD Ameritrade. I would now like to turn the meeting over to Ms. Jillian Manning, Head of Investor Relations. Please go ahead, Ms.
Manning.
Thank you, operator, and welcome to the call. We'll begin today's presentation with strategic remarks from Bharat Masrani, the Bank's CEO, after which Riaz Ahmed, the Bank's CFO, will walk through the details of the transaction. We will then open the call for questions from prequalified analysts and investors. Please note that as we're the 2nd call today on this topic, many of the details of the agreement have already been covered. As such, we will be brief and focus on the TD impact.
Please turn to Slide 2. At this time, I'd like to caution our listeners that this presentation contains forward looking statements, that there are risks that actual results could differ materially from what is discussed and that certain material factors or assumptions were applied in making these forward looking statements. Any forward looking statements contained in this presentation represent the views of management and are presented for the purpose of assisting the bank's shareholders and analysts in understanding the bank's financial position, objectives and priorities and anticipated financial performance. Forward looking statements may not be appropriate for other purposes. Please consult our news release and IR deck for additional information regarding material factors and assumptions that may impact our forward looking statements.
I would also like to remind listeners that the bank uses non GAAP financial measures to arrive at adjusted results to assess each of its businesses and to measure overall bank performance. The bank believes that adjusted results provide a better understanding of how management views the bank's performance. Additional information on items of note and adjusted results are available in our Q3 2019 report to shareholders and in this presentation. Finally, I will note that we are currently in quiet period and will not be offering comments on our Q4 or fiscal 2019 results on this call, nor will we take questions about those results. With that, I will ask you to turn to Slide 3, and I will turn the presentation over to Bharat.
Thank you, Jillian. Good morning, everyone, and thank you for joining us today. You will have seen the announcement that Schwab has agreed to acquire TD Ameritrade in a stock for stock transaction subject to certain closing conditions. This is a transformative deal that will deliver significant value for TD. Upon closing, TD will own a portion of the combined company and will enter into an extended IDA agreement with Schwab.
Riaz will provide you with the details of the transaction and expected financial impact for TD. Let me begin by sharing my perspective on the deal. As you know, TD has a long and distinguished history in the direct investing space. We were a pioneer in the Canadian market with the launch of TD Green Line almost 40 years ago. And we've been a leading player in the U.
S. For almost 25 years since our acquisition of Waterhouse Securities in 1996. In 2005, Ameritrade bought the U. S. Operations of TD Waterhouse to form TD Ameritrade and over time has created one of the top online brokers in the U.
S. With the best in class trading platform. We've owned a substantial stake in TD Ameritrade and together we've enjoyed a strong successful and profitable relationship. The U. S.
Wealth landscape has evolved significantly over the past several years, most recently with the reduction or elimination of online trading commissions in the direct investing industry. In an environment where top line growth is under pressure and customer expectations are rising, the benefits of size, scale and breadth have taken an even greater importance to support a rapid pace of innovation and to provide a full suite of services to clients. As you heard Schwab say on their call earlier, that is part of the rationale for today's deal. This transaction combines Schwab's leading investment services capabilities with TD Ameritrade's best in class direct investing platform to create an investment services business that is uniquely positioned to serve the investment, trading and wealth management needs of customers across every phase of their financial journey. We are excited to have an investment in the combined entity, which will operate under the highly regarded Schwab brand and have 24,000,000 client accounts across its direct investor and independent investor advisor networks, US5 $1,000,000,000,000 in client assets, a more complete product and solution set for a best customer experience, greater resilience in a volatile environment and a long term track record of consistently investing in the future delivering attractive growth and accretion prospects.
The acquisition delivers immediate value for TD Ameritrade shareholders, including TD. Looking ahead, we believe TD will benefit from having an ownership stake in a more diversified firm with a stronger growth profile. We've agreed to support the transaction and have entered into a new stockholders agreement with Schwab, which would be effective upon closing. Under the terms of the new agreement, TD will have 2 seats on Schwab's Board and will have customary standstill and lockup restrictions. Separately, we are pleased to secure an extended insured deposit account agreement with Schwab, which provides continuity for a profitable earnings stream.
While the new IDA may reduce in size over time, it offers attractive economics for both parties and will provide greater stability for our balance sheet. In summary, this is a terrific deal for TD. As Riaz will explain, Schwab's expected synergies and stronger growth profile has the potential to increase the value of our investment by $4,000,000,000 to $6,000,000,000 In addition, we have an opportunity to explore further business opportunities with 1 of the preeminent investment firms in the U. S. With that, I'll turn the call over to Riaz.
Thank you, Bharat. Please turn to Slide 4. Schwab and TD Ameritrade have entered into a definitive agreement for Schwab to acquire TD Ameritrade in a stock for stock transaction. On closing, TD Ameritrade shareholders, including TD, will receive 1.0837 shares of Schwab for each TD Ameritrade share they own, which implies a 17% premium over the 30 day volume weighted average price exchange ratio as of November 20, 2019. TD owns approximately 43% of TD Ameritrade today and will have an approximate 13.4% ownership stake in Schwab when the transaction is completed.
We will continue to use the equity method of accounting to recognize our proportionate share of Schwab's net income as we do with TD Ameritrade today. The transaction is expected to close in the second half of calendar twenty twenty, subject to customary conditions and approvals. At close, we expect to recognize a sizable revaluation gain on our investment based on Schwab's share price at that time. We expect the transaction to have minimal capital impact as the revaluation gain is largely offset by an increase in the carrying value of the investment. As Bharat noted, the new stockholders agreement we have entered into with Schwab will entitle us to nominate 2 directors on Schwab's Board.
We will hold our stake via a combination of voting and non voting common shares to address U. S. Regulatory considerations. Turning to the IDA agreement. As you know, TD has had an IDA agreement with TD Ameritrade for some time.
The current IDA has an expiry date of July 2023 and TD Ameritrade has the right to give notice in July 2021 to renegotiate it or place it in runoff. We are pleased to have secured an amended IDA with Schwab that will take effect upon the closing of the transaction and that will extend the term to 2,031. Under the amended IDA, TD will earn a flat 15 basis point servicing fee as compared with the current 25 basis point fee, which also varies with certain interest rate conditions. We will also continue to earn a spread on the assets in which we invest the sweep deposits as per current practice. We will continue to be the exclusive sweep bank for TD Ameritrade insured deposits until closing, and the IDA balances will be subject to certain adjustments there after as Schwab sets up its suite mechanics.
As at July 31, 2019, the IDA deposit stood at US103 billion Beginning in July 2021, Schwab will have the option to reduce the deposits at a rate of US10 $1,000,000,000 per year down to a floor of US50 $1,000,000,000 for the remainder of the agreements term. This option, if chosen by Schwab, gives us a comparable or better runoff profile than the current IDA if it were to be runoff by TD Ameritrade. In their call earlier, Schwab discussed how they view the economics of the amended and extended IDA. What you're always looking for in combinations is a win win, and we feel that about this whole transaction, including the amended and extended IDA. Please turn to Slide 5.
As Schwab outlined on their call earlier this morning, we expect to realize substantial expense and revenue synergies from the transaction. This slide illustrates the pro form a impact for TD as the synergies are realized and the growth of the company accelerates. By year 3 from closing, when Schwab expects integration to be complete and cost synergies are fully realized, we expect the increase in our share of the earnings before the amortization of intangibles and restructuring costs will more than offset the impact of lower revenues under the new IDA. Overall, we expect the transaction to become modestly accretive once integration is complete. Please turn to Slide 6.
As Bharat said, the most significant financial impact of the transaction is its effect on the value of our investment. There is significant value creation embedded in the synergy projections and growth prospects set out in Schwab's release earlier this morning. As this slide illustrates, the market reflecting those factors in the share price performance could result in significant incremental value creation with TD shares of those gains potentially reaching $4,000,000,000 to $6,000,000,000 With that, I will now open the call up for Q and A. Operator?
Thank you. We will now take questions from the telephone lines. Thank you. And the first question is from John Aiken from Barclays. Please go ahead.
Good morning. Riaz, given the fact that you're not expecting material impact on capital, I'm assuming this means that this is ROE dilutive, but does it become accretive in year 3 under your illustration?
From an ROE perspective, John, because of revaluation gain, you can expect that our shareholders' equity base therefore book value for shareholders' equity also therefore rises and therefore we expect this to be ROE dilutive.
Thanks, Chris.
Thank you. The next question is from Steve Theriault from 8 Capital. Please go ahead.
Thanks very much. To start, Riaz, just to clarify, mentioned minimum capital impact to close. Does that imply that the net CET1 is neutral on the deal standalone or are you baking in any pro form a accretion over the next few quarters to get to neutral? Just trying to get a
good sense of that.
No, Steve, the transaction would be CET1 neutral at closing. What will happen here is that the investment will move from the significant basket under Basel III to the insignificant basket under Basel III because of the percentage of voting shares that we would own. And it just turns out that the way that those two baskets will interact with implied goodwill and other releases that the transaction remains CET1 neutral at close.
Okay. And then I'm wondering
a bit what kind of
exercise it was to conclude. We were getting questions around your Was
it
Was it as simple as having Board seats assures that? And is there any risk to that view at all? I presume that discussion has already been had, but would love some color on that.
Well, as you would know, Steve, that the utilization of the equity method of accounting has a number of different indices, which can go to ownership, it can go to board representation, committee representation, significant contracts, etcetera. And when we looked at the terms as a whole, we concluded that the equity method of accounting would be appropriate in this circumstance.
Okay. Thanks. I'll re queue.
Thank you. The next question is from Meny Grauman from Cormark Securities. Please go ahead.
Hi, good morning. In the deck, it talks about further business opportunities that are possible with Schwab. I'm just wondering if you could describe some opportunities that you're contemplating. And is there any of that built into the accretion that you're showing on Slide 5?
Hany, this is Bharat. We will undertake negotiations and discussions with Schwab from today on as to what they would look like. We have a significant relationship going forward in the IDA arrangement as to what else we do with them will be subject to discussions. Currently, we have certain arrangements with TD Ameritrade. Overall, outside of the IDA, they have not proved to be as material as we would have liked them to be.
But our expectation is to undertake those discussions with Schwab to see where are there opportunities that works for both sides.
Thanks for that. And then just as a follow-up, why do you think that AMTD wasn't able to be the consolidator in the space when you put everything together?
This is Bharat again, Meny. As I said in my remarks, the landscape in the United States has changed quite dramatically. When we look at this transaction, you see what the combination delivers with respect to scale, size and as importantly, the breadth of offerings that are available to clients. And frankly Schwab is a customer centric model that is consistent with how TD looks at our approach to customer experience and the like. So when you look at many sort of options in the United States, we felt this was the best for TD.
And frankly, this is a transaction between TD Ameritrade and Schwab, and it has to make sense for all of shareholders of TD Ameritrade, and that's how this has played out. So we're very happy. I think the combination creates the preeminent firm in this space and any other options would have not resulted in such a combination.
Thank you.
Thank you. The next question is from Robert Sedran from CIBC Capital Markets. Please go ahead.
Hi, good morning. Just a couple of follow ups on the IDA, Riaz. They mentioned on the Schwab call that I think it was after year 5, they have the opportunity to use some floating rate securities instead. Curious if that means any change in economics to TD in the deal? And then second, is there anything in the revised IDA that is contingent on TD Bank remaining a shareholder in Schwab or does it go on to the term regardless?
Thank you.
Thank you, Robert. So in terms of the floating rate aspect of it, what is important is when we're looking at the economics of the transaction and our ability to term out those deposits is whether how we assess the permanence of those deposits, not necessarily whether they are non interest bearing or fixed interest bearing or floating, which is pretty conventional of how we think about our checking accounts and savings accounts, for example, where there can be fixed floating or demand balances. So really the floating rate nature of the balances that get accumulated is not as significant consideration. We would look at it in the ordinary course of our asset liability management practice. I think in terms of the agreement, in these kinds of agreements, there are always various terms and conditions that can relate to opportunities to negotiate the IDA and those kinds of contracts and so we have similar customary terms in this IDA.
And your ownership is one of those items?
Yes.
Okay. Thank you.
Thank you. The next question is from Sumit Malhotra from Scotiabank. Please go ahead.
Thanks. Good morning. First off, Riaz, you mentioned it a couple of times a substantial gain. Just so I can get my numbers right on the book value perspective, what's the ballpark on where Schwab shares closed Friday that you're expecting your book value gain to come in at?
Well, if you look at our July 31 balance sheet, you'll see that we carry the investment at just around under US30 dollars a share. And the valuation of those shares as of close on Friday would be near $50 a share. So if you use that as an example to project out to closing, that's $20 a share on some 230,000,000 shares. So that would be a $4,600,000,000 revaluation gain in U. S.
Dollars if the transaction would have closed on Friday night. Is that what you were looking for?
Yes, that's kind of what I'm thinking too, but I was still of the view that there would be some benefit to you from a capital perspective. Does and I mean, you could probably talk about some of this as we go forward, but does keeping the voting shares at a sub-ten percent level for the bank have a positive impact into how the substantial investment deduction, that's all terminology I know, but does that have a benefit to you from a capital perspective?
Not really, Sumit, because what happens is that above certain thresholds, the investment really deducts from capital on a dollar for dollar basis. So what ends up happening is you record an increase in your capital by virtue of the revaluation gain, but then you have a dollar for dollar deduction for the fact that you have a higher carrying value of your investment and that's essentially what's driving the capital neutrality.
And lastly for me will be for Bharat. It wasn't that long ago that the bank was working with its partner Ameritrade to consolidate Scottrade. And I think for both entities, the favorable impact on earnings was quite clear. And today, one way or another, and look, I know that having a smaller stake in a bigger entity has certainly worked for you in this space quite well in the past. How much consideration did you give with your partners at Ameritrade to continuing to go your own path when you had such a substantial investment in that entity and that there were smaller players.
Why should TD shareholders not look at the benefit of being the buyer instead of the seller as something that would have been the right path forward for TD?
Sumit, as you would expect, we would at TD look at all options available to us. But as I noted in my remarks, the landscape in the United States has evolved quite rapidly and continues to evolve where scale matters, particularly given some of the moves on commissions and the like. And so when we went through that various options and various analysis to go through it, this was the best one that from our perspective that made sense. And frankly TD Ameritrade has to go through the same it is a separate public company. It has its own Board of Directors and they looked at it as well.
I think the attractiveness here is scale obviously, but as well the breadth of offerings that are critically important going forward in this industry. So on an overall basis, we came to the conclusion that this was the best outcome and frankly an outcome that we are extremely pleased with because it gives TD a position in a preeminent firm where we have a long term arrangement with them in the form of the IDA. And financially, from a synergies and the like, it is very attractive. So overall, we could not be more pleased as to the outcome here.
No, it certainly worked well for you. So I appreciate your thoughts.
Thank you. The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead.
Hey, good morning. Congrats on the deal, first of all. 2nd, I've got 2 here. 1 is on that excess spread and Ria, you alluded to it. I know it's a fake secret, but I'm hoping you can give us a sense of size of how important this additional revenue stream is to you because all we can see is the 25% going to 15%, but there's still another piece of the puzzle that we don't see.
Gabe, I think if you generally look at the our balance sheet and our disclosures around the nature of the investment securities we carry in terms of their rating and the term to maturity to which we carry them, I think you can kind of get a fairly reasonable view of what that spread on those securities would be and maybe I'll leave it at that.
Okay. I'll have to follow-up on that one. Then my next one, similar to Sumit earlier, but maybe asked a bit differently. You're going from owning 43% of something with 5 or 6 board seats to owning 13% with 2 board seats. Just wondering how we should view that investment going forward.
Is it a core asset still? So in I mean, the scenario that I think a lot of people think about is, if a big U. S. Regional bank acquisition opportunity pops up, this could actually be a source of funding or liquidity for you. Is that a fair assessment?
Gabe, this is Barrett. We just announced the transaction this morning. You're going well past the thinking here. Listen, if you look at our history in this space, we've done very well. I know we've done things that sometimes are unusual in nature, but have turned out to be terrific for the bank, and I expect this to do likewise.
We are looking forward to a great relationship with Schwab and participating in the combination of these two great companies that is going to provide unparalleled offerings and service to the investing public in the United States. And that in itself is something that we are really looking forward to it. And the level of synergies here are substantial, as you I think it was pointed out earlier on the call as to what happens in such combinations. We are looking forward to be large beneficiaries of those synergies as they come through. So very excited about the transaction.
I think this is the right thing for TD to do and we look forward to an ongoing relationship with Schwab and participating in this terrific combination.
Well, thanks. I know it's early to ask about it, but I kind of had to. Thanks.
Thank you. The next question is Doug Young from Desjardins Capital Markets.
Just two questions. First, if I I mean, I do some rough math in terms of what the impact would be from taking your 43% stake down to 13% stake and look at Charles Schwab and Ameritrade together, factor in some synergies. And it looks like the net income impact you're giving up is not dissimilar to what you're getting. And then I look in just on Slide 5 and on the reported earnings component, there's a negative $160,000,000 Is it fair to say, Riaz, that that $160,000,000 negative question, Doug
question, Doug, may I just take the opportunity? I hope Rob Sidran is still listening. The ownership percentage is not relevant to the IDA. So I wish to just correct the record on that. Thank you.
Doug, to your question, if you look at the adjusted earnings on Slide 5 in year 1, the reduction of $25,000,000 in earnings in year 1 is primarily the impact of the immediate repricing of IDA on closing. And then as you go into year 2 year 3, you see that we have a very substantial accretion in earnings as Schwab starts to realize its synergies and its growth prospects starts picking up. So that growth is substantially more than offsets the impact of the reducing IDA. The differential between the adjusted earnings and the reported earnings is essentially 2 components. Our share of Schwab's integration costs would be one part of that, which as you know in the 1st 3 years will be as outlined by Schwab in their earlier call this morning.
And then the second thing that's in there is the amortization of intangibles that will result from the revaluation of our investment.
Okay. So I'm looking
at the wrong number. The minus $25,000,000 is what we should be
thinking of, okay. That is, Doug, a number that is 12 months from closing.
Yes.
It's year 1 impact, yes.
Yes, that's fair. And then just second, the lockup standstill, I didn't see any mention of it, but have you outlined what the standstill and lockup agreement is for TD on that 13% stake?
Well, under the stockholders agreement, we will be locked up from disposing the of the investment or any shares for 8 months from closing. And so that's fairly customary, which allows the market to just settle in and after the closing date. So it's an 8 months lockup and the standstills are pretty customary in terms of ownership certain prohibited actions, solicitation of proxies, etcetera.
So it's after 8 months, I'm not saying you're going to, but after 8 months you would be free and clear to sell your entire stick if you so choose, just so I'm clear on that?
Correct. Yes.
Thank you very much.
Thank you. The next question is from Nigel D'Souza from Veritas Investment Research. Please go ahead.
Thank you. Good morning. I wanted to follow-up on that same slide, Slide 5 and the impact to TD's earnings. So what I want to understand is the how to think of it relative to what TD Ameritrade contributed to U. S.
Retail over the last 12 months. So that's approximately, let's say, around $850,000,000,000 if I'm reading the slide correctly, would that mean that you don't expect to surpass that threshold from the synergies from growth, organic or inorganic, through the investment in Schwab until after 2023. Is that the correct timeline or how should I think about it?
Nigel, can you just clarify when you referred to $850,000,000,000 is that what are you referring to that number doesn't sound familiar to me?
Well, so the last four quarters, if you look at equity and net income of an investment in TD Ameritrade in U. S. Dollars,
I see. The adjusted
right. Are you
referring to the equity pickup of US850 $1,000,000
Yes. So that's the equity pickup for US Retail, right, over the last 12 months. So going forward, when do you expect this new Schwab investment structure to surpass that level of earnings contribution to U. S. Retail?
Would it be post-twenty 23? Is that the right way to think about it?
Well, if you look at on Slide 5, we give you as a baseline for calculation in the top left, we say that if you start with TD Ameritrade's consensus earnings based on their 2021 consensus and apply it on a Canadian dollar basis, that number our share of those earnings would be $940,000,000 So that is a number that is after the commission cut. And then as the synergies start coming in, the adjusted earnings start accreting as soon as in year 2.
Okay. And just another clarification, just a last follow-up on this, clarification of your assumptions for the IDA agreement. Are you assuming that the deposit run rate is relatively stable through your projection period here? Or is there any reflection of the potential that it might step down to the floor of $50,000,000,000
Well, I think what we've done in the calculations of the illustrations on Slide 5 is that we've basically assumed that and as Schwab articulated in their call this morning that the reduction of the IDA to $50,000,000,000 will occur as scheduled. Post that, as you know, the balances will remain stable through to 2,031.
Okay, great. Appreciate the clarification. Thank you.
Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead.
Hi, thank you. I just wanted to follow-up on that last point, some of the clarification you just gave on the balances. One of the things that was talked about this morning on the Charles Schwab call was that new money would be accreted to Schwab or I guess somehow that would go to Schwab Bank. So first of all, is that true right from the get go? Secondarily, along a similar thought process here, the spread on the assets, are you assuming that it is the same going forward?
Or do you change it? And then last question is that you mentioned a couple of times in this call that you were happy with the agreement and part of it being the fact that this was good for your balance sheet and that you extended the IDA agreement all the way up to 2,031. And what's hard for us to understand from the outside looking in is why that is good relative to your existing agreement. So in other words, is it possible that you could have negotiated a better agreement with TD Ameritrade without having to do this deal? Thank you.
Thanks, Tarako. So the way that the balances will work from closing is that we will continue to remain the exclusive insured suite for the legacy accounts up until Schwab has established its sweep mechanics, call that sort of the integration of the sweep mechanics, at which point then the balances stop growing from there and then the starting in July 2021, the runoff begins. So it is hard to predict exactly where those balances could be, but they're $103,000,000,000 today and they may be plus or minus whatever that integration of the sweep mechanics period would result in terms of the operation of client balances, natural market movement and legacy customers taking their making their transactions. So new money, if it's coming from the legacy accounts and if it's TD. To TD, sorry.
The sweep mechanics would continue to be swept to TD Ameritrade. TD. To TD, sorry. The spread on the assets, I mean, we're continuing to assume similar spreads as we've earned in the past. And there are differing liquidity costs, for example, as the agreement goes from being an affiliate broker sweep agreement to a non affiliate broker sweep agreement.
And then as mentioned earlier, the fact that later on it could become a floating balance, so we would need to think about and adjust how we think of the asset liability. But for the purposes where we are today, we're continuing to use the same assumptions. And I think we're happy with the agreement because, Darko, you have to look at, as Schwab mentioned earlier, that they have a different starting point from which they look at the IDA compared to Ameritrade. You'll recall back in 2004, 2005 when we had this initial transaction where Ameritrade bought TD Waterhouse, The arrangement was that TD Ameritrade then would be the broker and TD Bank would be the bank in that relationship. And we had a deposit agreement, which was essentially exclusive, but also uncapped, which meant that there are periods when the flows in the IDA would ramp up or ramp down depending on what was going on in the market.
Whereas as Schwab indicated earlier on their call today, they are a bank and so some of those kinds of valves and approaches that we had in place with TD Ameritrade do not necessarily apply here with Schwab. So, as I said earlier, in these kinds of transactions, you look for opportunities that are win win for both parties and we are happy with the extension. And as to your question about whether we could have negotiated a better deal under the current agreement, it's a hypothetical question and I don't know that I could speculate on that.
Okay. Thank you.
Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Good morning. Maybe going back to Nigel's question looking out to 2023, going back to Slide 5, you kind of show adjusted earnings accretion, but the vast size of this transaction and realize it will take a lot longer to integrate. If you look into year 45, would you kind of expect kind of stable increases to what you suggested or potentially more incremental benefit in year 4 and 5?
Scott, thank you for that question. It is difficult to predict going out to year 4 or 5 in the sense that what the market conditions are and what not, who knows. But I can tell you that we are happier with this investment having more strength and resilience. We are happy with having an investment in a company that is more diversified, has more scale, has a wider breadth products to offer to its clients. And as you heard on their call this morning, they are quite excited about their growth rate and they're hoping that their growth rate will accelerate with this transaction.
And we as one of their largest shareholders are clearly cheering them on that one.
Okay, fair enough. Thank you very much.
Thank you. The next question is from Sohrab Movahedi. Please go ahead.
Thank you. Just a couple of mechanical questions maybe for Riaz. Today, when you report the U. S. Segment for TD, the IDA economics, while within the segment, doesn't impact the segments, for example, net interest margin, as I understand it.
Will that continue to be the case?
Yes, I expect that to continue to be the case, Saurabh.
Thank you. And then from an equity accounting threshold perspective, I know you highlighted ownership, Board contract significance and a few other things. Is there a point at which one of those tips it from being equity accounted to, I guess, investment account that I'm trying to figure out here if you lost the Board seat or if you if, I don't know, if we get down to the $50,000,000,000 IDA level or is there I'm just trying to kind of get a feel for what's the risk level, so to speak, that this falls out of the equity accounting treatment?
Sohrab, I think that as you know, the equity accounting rules have a lot of judgment embedded in them. I mean, obviously there is a presumption test at the 20% ownership level. However, in a company of this size, we will which will have a market cap of some nearly $100,000,000,000 let's say, at the 13.4% ownership, we would be one of the largest shareholders. And as I said earlier that with Board and committee representation, etcetera. So, and there is not one indicator standalone that can inform the whole equity accounting methodology matter.
I think what we'd have to look at is all the time just reassessing the entire package and saying do we meet the tests and do we feel to use the equity method of accounting. So obviously, if things change, we would need to be reevaluating all the time and I can't give you a bottom line as to where that applies and where that doesn't apply because it is a matter of significant judgment.
I appreciate that. Thank you. And then just maybe one other clarification question with respect to the IDA and the $50,000,000,000 floor. Just so that I understand, is it possible that you go to the below $50,000,000,000 sooner than running off at $10,000,000,000 a year? In other words, is it possible some of the Ameritrade IDA sweep deposits kind of get rebranded as Schwab or there is some mechanics there that the downdraft is quicker than $10,000,000,000 a year?
No, they're not that kind of condition. But I mean if market conditions turn out to be that a lot more client assets go into investments, etcetera, it's possible that it could go below 50 in the ordinary course as our current IDA would. So the fluctuation elements would be similar.
Thank you very much.
Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead.
Hi, thank you. I just wanted to revisit a couple of things that you mentioned, and that was with respect to the movement from a significant to an insignificant ownership level. Because I wanted to walk through, if I could, Riaz, with you some of the capital impacts apart from revaluing the stake and the impact on common equity. I wanted to talk about the imputed goodwill and the RWA impact as well, if you could.
Well, you mentioned significant ownership. So I don't see those as insignificant ownerships, but you mean the description of the baskets as being significant or insignificant. My apologies. No, no, don't apologize. I just think that I didn't think 13.4% was a significant ownership anyway sitting here.
Look, I think when you are in the significant basket, exactly as you said, you do calculation of your imputed goodwill, you deduct that and then there's a basket test that the portion of the investment that is within that basket threshold gets risk weighted and anything in excess of that is a dollar for dollar deduction. And the insignificant basket is not that different from it except that it doesn't have an imputed goodwill component to it. You just simply look at all the various investments that you have that qualify in the insignificant basket and once they hit a certain threshold, which you risk weight that threshold and anything in excess is a dollar for dollar deduction. So the mechanics of the 2 are in principle similar, but of course there are very different methodologies applied to the 2 of them. Okay.
Yes. If you want to go through the sort of like a line by line detailed calculation, I'm sure Gillian will help you through that.
Yes, that's fine. No, actually you answered that. That's great. Last question for me. You were designated as a global systemic important bank.
Does that matter at all here in the relationship with Charles Schwab and or with the regulators?
No, not at all. I think that that particular designation, as you know, goes to the question of certain the capital thresholds and the way that you manage your balance sheet and liquidity and therefore is not relevant to completely to this how we manage the relationship with TD Ameritrade today and with Schwab after closing.
Okay. Thanks very much.
Thank you. The next question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.
I just wanted to Bharat, I just wanted to see if you could comment on how long does it take for a transaction like this
to come together? Again, each transaction is different. I mean, there are complications here as you can imagine. You're looking at 3 public companies. And so the level of complexity is not small.
But listen, when there is a lot of industrial logic to any transaction, then everybody converges to the same spot pretty quickly. Really happy with how this has evolved. Our investment in TD Ameritrade has created huge value to TD and our shareholders. And I expect the same here. So hard to comment on exactly how a comparable transaction might go.
But here, the industrial logic is so compelling that everybody's minds go there very quickly.
So no time dimension that you would attribute to it?
Listen, I mean, it's hard to speculate here. No, no,
I mean these transactions. I mean this for this to come together, was 6 months in the making? Was it 12 months in the making? Was it 6 weeks in the making?
Well, let's put it this way. At TD, we for any of our businesses, we have an ongoing process to say what makes sense for the bank. Has the environment changed in any particular manner that requires us to adapt faster or slower or whatever the case might be. So in this case, yes, I mean, it's not a question of years years in the making, but it is also not in days or weeks, it's months it takes to work these things out. But I think for me to put a precise time and we started to think about it and all that would be listen, I'm getting old memories.
Thank you very much.
All
right. Thank you.
There are no further questions at this time. I'd like to turn the meeting back over to Mr. Masrani.
Thank you, operator. To wrap up, as I just said, our investment in TD Ameritrade has been a terrific investment for TD over the years, and today's deal adds even more value to that investment. We could not be more pleased with the transaction, and we look forward to building on our new relationship with Schwab. Thank you all for joining us today. We look forward to speaking to you again on our Q4 call on December 5.
Thanks very much.
Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.