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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