If there has been one financial merger that never took place but could, it is — or was — the would-be buyout of E*Trade Financial Corp. (NASDAQ: ETFC). The biggest acquiring candidates have always been considered to be TD Ameritrade Holding Corp. (NYSE: AMTD) or Charles Schwab Corp. (NYSE: SCHW).

What investors likely will start to wonder about in the months ahead is whether the expected rising interest rate climate will rekindle those old merger hopes. If that takes place, E*Trade could find itself being targeted for a buyout by Schwab, TD Ameritrade or another firm that wants to grow its retail footprint.

A fresh report from Bank of America Merrill Lynch has hinted at this possibility. The firm raised its rating on Charles Schwab to Buy from Neutral, and the price objective was raised to $36 from $34, which compares to a $31.26 close. Meanwhile, TD Ameritrade was downgraded in the same report to Neutral from Buy and the price objective was kept at $41, versus a $36.72 close.

The big question is what the call really means for E*Trade down the road. Again, these buyout talks have been speculated about for more than a few weeks or months. The recession, particularly due to E*Trade creating a serious mortgage mess for itself, got in the way — and then there was being under Citadel’s thumb, which also got in the way. Now these issues are more or less history.

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24/7 Wall St. pondered this as one of six dream mergers that ought to happen back in March of this year. Again, this was far from the first year that any of us have believed that E*Trade could be (or should be) acquired.

The Merrill Lynch report pegs the notion that competition and M&A activity could rise again in the discount and online brokerage space. The firm’s Michael Carrier and Michael Needham said:

While we think the upside from rising rates and margins, as well as business growth could be significant, other factors could also impact the earnings potential and the stocks, including competitive pricing (where we see Schwab as most defensive and TD-Ameritrade and E*TRADE as more exposed) and/or possible M&A activity …

We view Schwab as well positioned given its exposure to higher short term rates, stronger organic growth (both NNA and balance sheet growth with capital deployment), and less pressure from competition. While we still see upside in Ameritrade, given its higher exposure to medium-term rates/the curve (as well as a longer period to fully normalize), lower organic earnings growth (despite higher NNA growth and a healthy dividend), and more exposure to pricing pressure, we are moving to Neutral.

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