Morgan Stanley buys online broker E-Trade in US$13 bln deal

February 21, 2020 09:14
Morgan Stanley says it is confident that the E-trade acquisition deal will go through without any regulatory hurdles. Photo: Reuters

Morgan Stanley has agreed to buy discount brokerage E-Trade Financial in a stock deal worth about US$13 billion, the biggest acquisition by a Wall Street bank since the 2008-2009 financial crisis, Reuters reports.

Part of a broader consolidation in the discount brokerage sector, the move will add breadth to Morgan Stanley’s wealth management unit, a business that CEO James Gorman has been trying to build out to insulate the bank from weak periods for trading and investment banking, the report noted.

“The addition of E-Trade’s products and iconic brand will serve as a leap forward” for the bank, Gorman was quoted as saying on a call with analysts on Thursday.

The CEO sounded confident that the deal will go through without any regulatory hurdles.

“We wouldn’t be entering into this (the deal) if we didn’t think from a regulatory perspective this would be viewed favorably,” said Gorman.

In an interview with CNBC on Thursday, Gorman said he had attempted to buy E-Trade twice - in 2002 when he was at Merrill Lynch and then again in 2007 at Morgan Stanley - before re-initiating talks late last year and finally sealing the deal.

Since taking over a decade ago, Gorman has pulled off multiple big acquisitions. He orchestrated the bank’s takeover of Smith Barney, making wealth management the cornerstone of his plan to stabilize revenue.

E-Trade, which became popular nearly two decades ago with commercials that blasted financial advisers for high fees, had been under the gun as the online trading space became more competitive with increased cut-throat pricing.

Revenue growth at the brokerage, like at rivals, has taken a hit in recent years from the emergence of digital upstarts, falling commissions and lower interest rates, prompting consolidation in the sector.

Late last year, E-Trade’s biggest rival Charles Schwab agreed to buy TD Ameritrade for US$26 billion.

Morgan Stanley will get E-Trade’s more than 5.2 million client accounts and US$360 billion of retail client assets.

The brokerage’s CEO, Mike Pizzi, will continue to run the business following the merger.

E-Trade shareholders will get 1.0432 Morgan Stanley shares for each share as part of the deal. That translates to US$58.74 per share, a premium of 30.7 percent to the last closing price of E-Trade shares.

The deal is expected to close in the fourth quarter of 2020.

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