Morgan Stanley to buy online brokerage E-Trade for $13bn
Morgan Stanley is to buy the online brokerage E-Trade Financial for $13bn in the largest banking deal since the 2008 financial crisis.
The takeover confirms a shift for Wall Street banks away from an old model of wealth management with brokers charging commissions on trades for a relatively limited pool of high net worth individuals and corporate clients and toward a model based on the needs of millions of individual investors.
E-Trade, with 5.2 million client accounts and over $360bn of retail client assets, will be adding to Morgan Stanley’s 3 million client accounts and $2.7tn of client assets, a press release said.
The investment bank will pay $58.74 a share in stock for E-Trade in a deal that will combine to a total of close to $3.1tn in client assets.
The Wall Street Journal, which broke news of the sale, said it would “combine a Wall Street firm in the late innings of a decade-long turnaround with a discount broker built on the backs of dot-com day traders.”
Morgan Stanley’s CEO, James Gorman, told the paper: “This isn’t about legacy-building; it’s about getting Morgan Stanley ready for prime time.”
Last year, Charles Schwab made a $26bn purchase of TD Ameritrade, signalling consolidation in the discount brokerage industry that is facing pressure from zero commission trading.
For Morgan Stanley, which was founded by John Pierpoint Morgan, an icon of the Gilded Age often credited with saving the US economy from collapse during the Panic of 1907, the purchase adds about $56bn in yearly E-Trade customer deposits that will provide “significant funding benefits” the bank said.
“There’s a longer-term strategic play here around the digital opportunity and acquiring new corporate service customers and getting a higher percentage of their wallet over time,” Devin Ryan, JMP Securities managing director of equity research, said
“E-trade has nearly 2 million corporate stock plan customers and so this strategically widens the potential opportunity for Morgan Stanley to convert those customers,” Ryan added.
But the hook-up still leaves E-Trade smaller than Fidelity, Vanguard and Schwab in terms of assets and likely pressure smaller brokerage firms to partner up as the business of investment management continues to consolidate.
