Morgan Stanley Confirms $13 Billion Acquisition
E-Trade stock advanced up to 25 per cent on Thursday morning after Morgan Stanley, one of the biggest names on Wall Street announced that it would buy the online discount brokerage for $13 billion. The move, which saw Morgan Stanley’s shares drop by more than 4 per cent, marks the biggest takeover by a US bank since the global financial crisis. It further reveals the firm’s intention of catering to everyday consumers.
The deal comes nearly after close to three months following E-Trade rivals TD Ameritrade, and Charles Schwab announced a $26 billion merger. The combined company would be a brokerage giant where it owns 24 million customer accounts and more than $5 trillion in client assets. Both firms have a joint annual revenue of about $25 billion.
Like other companies in the industry, discount brokers had to adapt and innovate their business models after the industry did away with commissions on online trades in 2019. Specifically, E-Trade’s move was inevitable after Charles Schwab and TD Ameritrade each announced that they were putting an end to commissions for investors trading stocks. E-Trade had previously been charging $6.95 as a standard commission. Collectively, the total loss of revenue from commission eliminations amount to $75 million.
Meanwhile, Morgan Stanley will fork out $58.74 per share in its offer to E-Trade, an approximate 30 per cent premium on the value of its current online brokerage’s share price. Collectively, the deal brings together more than $3 trillion in client assets. The move also solidifies Morgan Stanley’s goal of placing an increased focus on wealth management instead of trading and investment banking since the global financial crisis many years back. Additionally, it too fulfills Morgan Stanley’s aim of bringing in more retail clients into its advisory business.
While talks were ongoing, Morgan Stanley referred to E-Trade as the code name “Eagle” while it labelled itself as “Moon”. As a result, this reveals an indirect indication of Morgan Stanley’s moonshot – a revolutionary deal that management likened to the first man landing on the moon. Specifically, the acquisition of E-Trade will provide Morgan Stanley with more than five million new customer accounts. Morgan Stanley regards the E-Trade deal as an opportunity to complement their existing skills, allowing the firm to be a full-service wealth management giant and offering services for all market segments.
On the other hand, Goldman Sachs had plenty of opportunities to make an offer for the discount brokerage firm before rival Morgan Stanley did. However, the investment bank did not have a go at it following a well-thought-out decision. The firm had studied the possibility of an internal deal but decided against it as its direct-to-consumer play, Marcus, had already obtained more than $50 billion in consumer deposits.
By Caroline Wong
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