Investment Bank Morgan Stanley Buying E*TRADE

2020-02-20 | Simpler Trading Team

One of the largest banks catering to the wealthy is buying access to billions in deposits held by millions of retail investors.

Morgan Stanley has agreed to acquire E*TRADE Financial Corporation in an all-stock transaction valued at $13 billion. The deal is set to close in the fourth quarter.

The acquisition will give Morgan Stanley (NYSE: MS) access to 5.2 million E*TRADE (NASDAQ: ETFC) client accounts with more than $360 billion of retail assets. This adds to Morgan Stanley’s 3 million client relationships and $2.7 trillion of client assets.

E*TRADE brings to the table almost 40 years in the discount digital brokerage and banking space focused on consumer-facing technology platforms. This includes a full suite of digital banking services, including direct integration with brokerage accounts, checking and high-yield savings accounts.

Morgan Stanley, an investment bank for corporations and wealthy investors, expects the purchase will significantly accelerate its digital banking efforts. The transaction adds approximately $56 billion of low-cost deposits, which will provide significant funding benefits to Morgan Stanley.

This acquisition follows previous consolidation in the brokerage world, including Charles Schwab buying competitor TD Ameritrade for $26 billion. The deal was announced in the fourth quarter last year. TD Ameritrade operates thinkorswim®, the advanced trading software platform that supports traders in day-to-day investing.

The Schwab/TD Ameritrade deal was a blockbuster purchase that continued the disruption in the world of discount brokerages. In mid-2019, Schwab forced the hand of competitors by eliminating commissions on many trades, including stocks and options.

We Saw: limited market reaction on “bad” news — 

  • Fed comments that market “too aggressive”
  • China lowers loan prime rate to ease coronavirus effects
  • Further consolidation within discount brokerage world

We’re Watching: market’s pulling back a bit on the day  — 

  • Taking gains in SPCE, watching for continuation
  • Eyeing various earnings reports for lotto trades
  • NASDAQ historically down end of February (13 of last 20 years)

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