Morgan Stanley is buying E*Trade in a $13 billion deal that will become the biggest takeover by a US bank since the 2008 financial crash, it was announced Thursday.
The Wall Street giant’s plans to take over the discount broker comes as it continues its efforts to reach the ‘common man’.
For the e-broker, the deal will leave it better-placed to take on its rivals after a turbulent year which saw firms scrambling for customers by scrapping fees and two of its bigger competitors announcing a merger.
The all-stock takeover, dubbed Project Eagle, has been agreed at $58.74 a share and is expected to close in the fourth quarter.
Morgan Stanley Chairman and CEO James Gorman (left) and E*Trade CEO Michael Pizzi (right). The all-stock takeover, dubbed Project Eagle, has been agreed at $58.74 a share and is expected to close in the fourth quarter
It will see Morgan Stanley take on E*Trade’s five million retail customers, their $360 billion in assets and its online bank with cheap deposits.
This will take Morgan Stanley’s portfolio to more than 4,000 corporate customers and $580 billion of stock held on behalf of their employees.
E*Trade’s operations are expected to stay largely the same, with CEO Michael Pizzi, the E*Trade brand, its retail stores and signature ad campaigns all sticking around.
The news marks the latest ploy by Morgan Stanley to leave behind its high-wealth roots and appeal to the regular person in the street.
The two firms currently have largely polar opposite business models, with discount and online broker E*Trade reaching the regular person and Morgan Stanley’s human advisers long making the firm a banker of choice among the millionaire set.
Morgan Stanley has been taking steps to target the average Joe of late, launching an online-only tool for less wealthy customers in 2019.
Chairman and CEO James Gorman said in a statement that this latest move will now take the expansion of its wealth-management arm up a gear.
The Wall Street giant’s plans to take over the discount broker comes as it continues its efforts to reach the ‘common man’
For discount broker E*Trade, the deal will leave it better-placed to take on its rivals after a turbulent year which saw firms scrambling for customers by scrapping fees and two of its bigger competitors announcing a merger
‘E-Trade represents an extraordinary growth opportunity for our wealth management business and a leap forward in our wealth management strategy,’ he said.
‘The combination adds an iconic brand in the direct-to-consumer channel to our leading advisor-driven model, while also creating a premier workplace wealth provider for corporations and their employees.’
‘We’ll take on Schwab. We’ll take on Fidelity,’ Gorman told The Wall Street Journal.
‘This isn’t about legacy-building; it’s about getting [Morgan Stanley] ready for prime time.’
He added that E*Trade also presents an opportunity to take Morgan Stanley’s wealth-management division international.
Gorman has led a major turnaround of the bank since taking its helm back in 2010.
Slashing risky trade options and growing its wealth management arm has helped the firm stabilize, reaching record $41 billion revenues last year.
This latest acquisition also follows its buyout of Solium last year for $900 million.
The deal also comes at a good time for E*Trade, after a fee war among discount brokers and a shock merger between two its rivals last year has threatened to derail the firm.
In October, one of its biggest competitors Charles Schwab announced it was scrapping customer fees for online trading of US stocks.
Then, in November, Charles Schwab announced it was merging with TD Ameritrade Holding Corp.
The news sent E*Trade’s share price tumbling.
While E*Trade was forced to follow in the footsteps of Charles Schwab and switch to a $0 commission model for online trades, many on Wall Street thought the firm’s future could be in jeopardy and that a takeover from Morgan Stanley or Goldman Sachs could be on the cards.
Today’s announcement is the largest deal by a major player since the 2008 financial crisis sent Wall Street into turmoil and left banks cautious of making such large investments.
There have been other recent signs of renewed confidence among big firms, with Goldman Sachs building an online retail bank.