- Morgan Stanley set to buy online broker E-trade for $13 billion
- E-Trade shares rose 24% on the news, while Morgan Stanley fell 4%
- The takeover will make Morgan Stanley one of the leading companies on Wall Street and Main Street
Morgan Stanley will acquire the online trading platform E-Trade for $13 billion in an all-stock deal, a deal that indicates the bank’s serious intentions to serve everyday consumers.
E-Trade’s shares climbed 24% in early trading after the news broke out, while shares of Morgan dropped over 4%. The takeover comes about three months after Charles Schwab and online broker TD Ameritrade completed a $26 billion merger.
Online brokers had to adjust their business models as almost every firm in the industry removed commissions on online trades last year, terminating the so-called lucrative revenue stream.
“As we enter the latter part of the economic cycle and a slowdown in earnings growth, we expect more transactions,” said Kian Abouhossein, an analyst at JPMorgan, indicating the potential of other similar deals that may follow.
The takeover will offer various opportunities to Morgan Stanley.
The acquisition of E-trade, a broker valued at around 14% of its own market cap will let the bank increase annual revenues by much more than the 3 per cent growth it reported last year.
According to the reports from last month, E-Trade’s earnings per share plunged 30% in Q4 year over year, failing to match analysts’ estimates. Overall revenue dropped 8% and commissions revenue plummeted 54%.
The takeover will boost Morgan Stanley to instantly become one of the leading financial companies on both Wall Street and Main Street.
The acquisition includes E-Trade’s 5.2 million mainstream investing users and more than $360 billion in assets, boosting the bank’s wealth management business, which mostly caters to wealthier consumers. At this time, it has 3 million users and $2.7 trillion in assets.
“E-Trade represents an extraordinary growth opportunity for our Wealth Management business and a leap forward in our Wealth Management strategy,” said Chairman and Chief Executive of Morgan Stanley James Gorman in a statement.
The deal will also add an “iconic brand” to the bank that will help promote its digital business as well, said Gorman.
E-Trade’s current CEO Mike Pizzi will keep his position and run the business for Morgan Stanley.