Topline: E-Trade stock surged up to 25% on Thursday morning after Morgan Stanley, one of the biggest names on Wall Street, announced it would buy the online discount brokerage for $13 billion, solidifying the bank’s shift to the wealth management business.
- E-Trade’s stock surged 24% while Morgan Stanley’s fell 4% after both companies announced the news on Thursday morning.
- The blockbuster deal marks the latest in a wave of consolidation for the online brokerage industry, following Charles Schwab’s all-stock $26 billion acquisition of TD Ameritrade in November 2019.
- E-Trade has struggled amid a price war among online brokerages, which began last year when Schwab slashed trading fees to zero, prompting others in the industry to quickly follow suit.
- Morgan Stanley will pay $58.74 per share in a stock offer for E-Trade, about a 30% premium on the value of the online brokerage’s share price, in a deal that brings together over $3 trillion in client assets.
- It solidifies Morgan Stanley’s strategy of increasingly focusing on wealth management rather than investment banking and trading since the financial crisis, with the aim of courting more retail investors into its advisor business.
- In 2010, Morgan Stanley’s wealth management business was 26% of the firm’s pretax profit, and by 2019 it made up 51% of pretax profit.
Crucial statistics: Buying E-Trade will give Morgan Stanley 5.2 million new customer accounts and $360 billion in assets. Morgan Stanley oversaw some $2.7 trillion in assets before the deal, largely tied to larger companies and high-net-worth individuals.
Crucial quote: “Morgan Stanley talks about this E-Trade deal complementing their existing capabilities and making them a full-service wealth/investment management giant, offering services for all market segments (higher-end advisor-driven, lower-end self-directed, and workplace),” wrote Vital Knowledge founder Adam Crisafulli in a note. “Strategically the transaction makes a lot of sense and it will help bolster earnings growth.”
Tangent: “Morgan Stanley’s acquisition of E*Trade gives them access to brokerage customers, employees with company stock, and the lifeblood of financial services – low cost retail bank deposits,” says Greg McBridge, chief financial analyst for Bankrate. “As Goldman Sachs has grown their online bank Marcus, and as Schwab has acquired TD Ameritrade, the trail was blazed for Morgan Stanley’s pathway into financial services for mass affluent and the up-and-comers that will be tomorrow’s affluent households.”
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