In a consolidation move for the brokerage space, investment bank Morgan Stanley has announced it will acquire electronic trading platform E-Trade for $13 billion, according to a report by CNBC.
Morgan Stanley will pay $58.74 per share in an agreement that will consolidate $3.1 trillion in client assets. The agreement is expected to be finalized in Q4.
Shares of Morgan Stanley went down around 3 percent on the news, and E-Trade shares popped 24 percent to $55.90 a share.
“E*TRADE represents an extraordinary growth opportunity for our wealth management business and a leap forward in our wealth management strategy,” Morgan Stanley Chairman and CEO James Gorman said in a statement. “In addition, this continues the decade-long transition of our firm to a more balance sheet-light business mix, emphasizing more durable sources of revenue.”
Last year, Charles Schwab purchased TD Ameritrade for $26 billion in stock, and many analysts speculated that E-Trade would be the next to team up as the brokerage industry experienced ongoing margin pressures from non-commission trading.
When Schwab decided to abandon its online commission fees last October, companies like Fidelity and E-Trade had no choice but to do the same.
“I think it’s a fair price to E-Trade shareholders,” said Devin Ryan, JMP Securities managing director of equity research. “For Morgan Stanley, there’s a longer-term strategic play here around the digital opportunity and acquiring of new corporate service customers and getting a higher percentage of their wallet over time.”
Morgan Stanley has had its eye on E-Trade for a while; it generates around $56 billion in yearly deposits. The acquiring bank has struggled to boost deposits to fund loans. E-Trade’s deposits business will provide “significant funding benefits to Morgan Stanley,” the bank said.
“They both have leading corporate stock plan businesses, and a big part of Morgan Stanley’s growth initiative for the year in wealth management is converting those customers to Morgan Stanley wealth management customers,” Ryan said. “E-Trade has nearly two million corporate stock plan customers, and so this strategically widens the potential opportunity for Morgan Stanley to convert those customers.”