Morgan Stanley Moves to Acquire E*Trade for $13 Billion

On Thursday, Feb. 20, Wall Street Investment Bank, Morgan Stanley (MS - 4.3 %)  announced that it was making plans to acquire prominent stock brokerage firm, E-Trade (ETFC) in a $13 billion all-stock deal. Both companies described the acquisition deal as a wave that will collectively lower trading commissions in the brokerage industry.

The acquisition deal will see Morgan Stanley paying $58.74 per share for E*Trade stocks. The deal is also expected to bring a cumulative total of $3.1 trillion in client assets. The proposed acquisition by this top bank is reportedly the biggest takeover since the financial crisis. Following the news of the acquisition, shares of Morgan Stanley fell by 4.6%, while shares of E*Trade rose to %54.73 per share, which is a 21.8% increase.

In a statement, the Chairman and Chief Executive Officer of Morgan Stanley, James Gorman said, “E*TRADE represents an extraordinary growth opportunity for our Wealth Management business and a leap forward in our Wealth Management strategy. 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.”

Morgan Stanley offers investment and financial packages. It is headquartered in Midtown Manhattan, New York City. The bank operates in over 42 countries with over 60,000 employees and clients cutting across corporations, governments, institutions, and individuals. It is reportedly one of the largest corporations in the US based on total revenue.

Several reactions have trailed the news of the acquisition deal.

The CEO of Morgan Stanley, Gorman went further to reveal the rationale behind the acquisition. He said, “The rationale is that this is sort of the next step in our journey. It’s got implications for the wealth management business, first and foremost. There’s been a convergence of technology across all platforms and this gives us access to both the workplace direct as well as our core financial advisory which is unchanged … and then for Morgan Stanley this gives us more ballast.”

The former CEO of Wells Fargo, Dick Kovacevich also commented and described the Stanley Morgan and E*Trade deal as a good one. He said, “It reminds me a little bit of the Dean Witter deal by Morgan Stanley many decades ago, this is the 2020 version of that. … I think [Gorman] believes that an emerging wealth customer base, many of those or some of those will become full-fee brokerage customers as they increase their wealth over time. I really think E-Trade had to make some sort of a deal given the no-fee trade situation in the discount brokerage business and I think they got a really good deal.”

This deal confirms the suspicion of several analysts who said that E*Trade was probably going to be the next to find a partner after Charles Schwab acquired TD Ameritrade in an all-stock deal of $26 billion last year. Reports also made the rounds that pressures from zero-commission trading and other associated discounts affected the performance of E*Trade.

The deal is expected to be completed by the fourth quarter of 2020.