Wall Street

Morgan Stanley agreed to purchase E * Trade

Summary

Why Morgan Stanley purchased E-Trade Description video: CNBC’s Hugh Son explains the reasoning behind Morgan Stanley’s decision to acquire E-Trade in an all-stock deal.\n\nMorgan Stanley, the tony investment bank for rich Americans and corporations, is making a play for the […]

Why Morgan Stanley purchased E-Trade

Description video:
CNBC’s Hugh Son explains the reasoning behind Morgan Stanley’s decision to acquire E-Trade in an all-stock deal.\n\nMorgan Stanley, the tony investment bank for rich Americans and corporations, is making a play for the masses with its $13 billion takeover of discount brokerage pioneer E-Trade.\n\nThe move, announced early Thursday, is the biggest takeover by a U.S. bank since the financial crisis. It represents CEO James Gorman’s move to double down on his all-in bet on the U.S. wealth management industry. The New York-based bank is getting E-Trade’s 5.2 million customer accounts with $360 billion in assets and a leading business that manages corporate stock plans.\n\nWhen the deal is completed, expected in the fourth quarter, Morgan Stanley will have broadened its franchise with a direct-to-consumer brokerage platform on top of its leading investment bank and army of high-end financial advisers catering to multimillionaires. Wealth management will make up almost 60% of the firm’s pretax profits, providing a counterweight to the more volatile Wall Street businesses like institutional trading of stocks and bonds.\n\nMorgan Stanley “will look to couple their advisor-driven model with ETFC’s direct-to-consumer and digital capabilities,” Piper Sandler analyst Richard Repetto said in a note. “As a result this will widen, while potentially enhancing, MS’ current offerings.”\n\nBut perhaps most importantly, Morgan Stanley will gain access to E-Trade’s $56 billion in deposits. In the past, the bank has struggled to raise deposits to fund loans to its wealthy clientele, relying on high-interest CD promotions.\n\nThat will lower its funding costs by about $150 million, on top of the $400 million in other savings Morgan Stanley says the deal will bring.\n\nBut soon after the deal’s announcement, rivals wasted no time to claim that the bank overpaid for those deposits. Goldman Sachs has managed to raise a similar amount, over $50 billion, by organically developing its own Marcus business.\n\nFor access to live and exclusive video from CNBC subscribe to CNBC PRO: https://www.cnbc.com/pro/?__source=youtube\n \n» Subscribe to CNBC TV: https://cnb.cx/SubscribeCNBCtelevision\n» Subscribe to CNBC: https://cnb.cx/SubscribeCNBC\n» Subscribe to CNBC Classic: https://cnb.cx/SubscribeCNBCclassic\n \nTurn to CNBC TV for the latest stock market news and analysis. From market futures to live price updates CNBC is the leader in business news worldwide.\n \nConnect with CNBC News Online\nGet the latest news: http://www.cnbc.com/\nFollow CNBC on LinkedIn: https://cnb.cx/LinkedInCNBC\nFollow CNBC News on Facebook: https://cnb.cx/LikeCNBC\nFollow CNBC News on Twitter: https://cnb.cx/FollowCNBC\nFollow CNBC News on Instagram: https://cnb.cx/InstagramCNBC\n \n#CNBC\n#CNBC TV

Morgan Stanley agreed to purchase E * Trade

Morgan Stanley will acquire E * Trade Financial Corp for $ 13 billion. Investbank will pay 58.74 dollars for each share of the company. Against the backdrop of this news, Morgan Stanley shares slipped more than 4%. At the same time, E * Trade shares soared 23%.

«The deal with E * Trade will provide us with a great opportunity to increase growth our asset management business», – said James Gorman, chairman and CEO of Morgan Stanley. 

«In addition, it is in line with our strategy of moving to a lighter business balance, focusing on more reliable sources of income.», – he added.

The completion of the transaction is expected in the fourth quarter of 2020. Recall that last year Charles Schwab acquired TD Ameritrade for $ 26 billion. Then analysts immediately suggested that E * Trade could also be very interested in finding a partner, as the brokerage industry faces growing pressure from trading with zero commission.. After Schwab became the first major player to cut online commissions last October, competitors were forced to follow suit..

E * Trade is an attractive target for an investment bank that relies on consumer finance due to its very strong base deposits, which annually generates about 56 billion dollars in accounts. The custodian business will provide significant funding advantages for Morgan Stanley, the bank says.

Morgan Stanley agreed to purchase E * Trade

E * Trade has 5.2 million client accounts and over $ 360 billion in retail client assets.

E * Trade CEO Mike Pizzi will continue to manage business and integration within the Morgan Stanley franchise following the deal.

The agreement is likely to put pressure on smaller brokers such as Interactive Brokers as well as startup Robinhood, which began free trading in 2013.