Morgan Stanley to Acquire E*Trade
When Charles Schwab announced it was lowering its trade fees to $0 — following the lead of FinTech startups like Robinhood — it was clear that a shake up to the brokerage industry was underway. Sure enough, within days, several other firms including TD Ameritrade, E*Trade, and others revealed that they too would be putting an end to their trade fees. This was then followed by the news that Schwab would acquire TD Ameritrade for $26 billion, further changing the landscape. Now another major merger is afoot as Morgan Stanley has announced it will acquire E*Trade.
Morgan Stanley’s all-stock deal for E*Trade is valued at approximately $13 billion — half of what Schwab is paying for Ameritrade. The combined companies will manage $3.1 trillion in client assets. According to a press release, E*Trade will continue to operate within Morgan Stanley with that company’s current CEO Mike Pizzi heading efforts for the brand. Additionally one of E*Trade’s independent directors will join Morgan Stanley’s Board of Directors. Assuming the deal is approved by regulators and E*Trade’s shareholders, closing is expected in Q4 of this year.
In a statement regarding the acquisition, Morgan Stanley chairman and CEO James Gorman said of the deal, “E*Trade represents an extraordinary growth opportunity for our Wealth Management business and a leap forward in our Wealth Management strategy. The combination adds an iconic brand in the direct-to-consumer channel to our leading advisor-driven model, while also creating a premier Workplace Wealth provider for corporations and their employees.” Gurman continued, “E*TRADE’s products, innovation in technology, and established brand will help position Morgan Stanley as a top player across all three channels: Financial Advisory, Self-Directed, and Workplace.”
Meanwhile E*Trade’s Pizzi stated, “Since we created the digital brokerage category nearly 40 years ago, E*Trade has consistently disrupted the status quo and delivered cutting-edge tools and services to investors, traders, and stock plan administrators. 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.” He added, “Bringing E*Trade’s brand and offerings under the Morgan Stanley umbrella creates a truly exciting wealth management value proposition and enables our collective team to serve a far wider spectrum of clients.”
Interestingly, according to the Wall Street Journal, Gorman has been eyeing E*Trade for nearly two decades. In fact the paper reports that Morgan Stanley explored acquisition of the firm all the way back in 2007 but negotiations fell through. Obviously 2020 is a completely different world in terms of banking and brokerage, making now the right time to get the deal done. Of course, while E*Trade joining forces with Morgan Stanley might help them compete with the growing Charles Schwab, other discount brokerages like Fidelity, and Silicon Valley startups, it will be interesting to see if the firm ultimately weathers the changes the industry has seen in just a few short months.