Morgan Stanley announced plans Thursday to buy discount brokerage E*Trade for about $13 billion in a deal that will boost the investment bank’s wealth management business.
The all-stock deal, expected to close in the fourth quarter of this year, will create a combined platform with more than 8 million client accounts and relationships and $3.1 trillion in assets, according to the bank.
“The combination adds an iconic brand in the direct-to-consumer channel to our leading advisor-driven model,” Morgan Stanley chairman and CEO James Gorman said in a statement.
E*Trade shares skyrocketed more than 21 percent in premarket on news of the takeover, which comes on the heels of Charles Schwab’s blockbuster $26 billion acquisition of TD Ameritrade that was announced in November. Morgan Stanley shares were down 5.7 percent in early trading at $53.07 as of 8:28 a.m.
E*Trade CEO Mike Pizzi will continue running the business under Morgan Stanley’s ownership, the bank said. One of E*Trade’s independent directors will also be invited to Morgan Stanley’s board, according to a news release.
“By joining Morgan Stanley, we will be able to take our combined offering to the next level and deliver an even more comprehensive suite of wealth management capabilities,” Pizzi said in a statement.
Founded in 1982, E*Trade has grown to comprise more than 5.2 million client accounts and more than $360 billion in client assets, according to the news release. The digital brokerage has more users but a smaller asset portfolio than Morgan Stanley, which boasts 3 million “client relationships” and $2.7 trillion in assets.
Even after the deal closes, Morgan Stanley will have a much smaller brokerage business than the combined Charles Schwab and TD Ameritrade, which will boast 24 million brokerage accounts with more than $5 trillion in client assets.
But Gorman reportedly wants to compete with the likes of Schwab and brokerage giant Fidelity Investments as Morgan Stanley continues a turnaround that started in the wake of the 2008 financial crisis.
“We’ll take on Schwab. We’ll take on Fidelity,” Gorman told The Wall Street Journal, which broke the news of the E*Trade deal. “This isn’t about legacy-building; it’s about getting [Morgan Stanley] ready for prime time.”
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