Morgan Stanley to buy E*Trade in a $13 billion deal

Morgan Stanley is buying E*Trade Financial, the company known for helping everyday Americans manage their money, in a $13 billion all-stock deal, the investment bank said Thursday.

Why it matters: The deal signals Morgan Stanley’s desire to bulk up in wealth management, a strong profit arm of its business model. As the WSJ notes, Wall Street banks have been looking for steadier sources of revenue, now that “postcrisis regulations and a long period of eerie calm in the markets” have taken a toll on profits.

The big picture: The deal, which is expected to close by year-end, is the largest by a major American bank since the financial crisis.

  • The acquisition of E*Trade will add more than 8 million customers — plus $3.1 trillion in client money — to Morgan Stanley’s wealth management arm.
  • Morgan Stanley CEO James Gorman told CNBC that the deal opens a “new demographic” of clients for the storied firm that has historically catered to the nation’s most wealthy.

What they’re saying: “Wall Street banks continue to covet Main Street customers,” says Greg Bride, chief financial analyst at Bankrate.

  • One example is Morgan Stanley’s arch-rival Goldman Sachs, which is dedicated to growing its digital consumer bank, Marcus, and serving the same demographic.

By the numbers: The deal is expected to boost the wealth management division’s profit contribution to 57% — up from the 26% the business contributed in 2010, according to a company press release.

The bottom line: E*Trade has been in a state of limbo since November, when its major competitors — Charles Schwab Corp. and TD Ameritrade — merged, raising questions about whether E*Trade would be able to survive on its own, per the Journal.

  • Morgan Stanley will pay $58.74 per share for E*Trade — a 30% premium from where shares were trading before the deal was announced.

Go deeper: Six of the biggest U.S. banks have weaknesses in their crisis plans

373 Replies to “Morgan Stanley to buy E*Trade in a $13 billion deal”

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