M&A

Morgan Stanley to Buy E-Trade for $13B

The deal could prompt more consolidation in the online brokerage industry.
Lauren MuskettFebruary 20, 2020
Morgan Stanley to Buy E-Trade for $13B

Morgan Stanley has reached an agreement to buy brokerage firm E-Trade for $13 billion in an all-stock deal, the companies announced.

Morgan Stanley will pay $58.74 per share for E-Trade to bring together $3.1 trillion in client assets. The share price represents a premium of more than 30% to E-Trade’s last closing price.

The deal is the biggest takeover by a U.S. bank since the financial crisis. By assets, it would still be smaller than Fidelity, Vanguard, and Charles Schwab.

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Under the terms of the deal, E-Trade chief executive officer Mike Pizzi will join Morgan Stanley while continuing to run the business. The bank is expected to keep E-Trade’s strong brand name.

“E-TRADE represents an extraordinary growth opportunity for our wealth management business and a leap forward in our wealth management strategy,” Morgan Stanley chairman and CEO James Gorman said in a statement. “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 said it expected to achieve about $400 million in cost synergies. It said the $56 billion in deposits E-Trade generates each year would provide significant funding benefits.

The deal is expected to close in the fourth quarter.

E-Trade has been seen as a possible candidate for a merger since Charles Schwab bought TD Ameritrade in a $26 billion all-stock deal last year. Schwab dropped online commission fees last October, forcing Fidelity and E-Trade to do the same.

Devin Ryan, a managing director at JMP Securities, said a big part of Morgan Stanley’s plan to grow its wealth management business was by targeting corporate stock-plan customers.

“E-Trade has nearly 2 million corporate stock plan customers and so this strategically widens the potential opportunity for Morgan Stanley to convert those customers,” Ryan said.

E-Trade shares jumped more than 24% on the news. Morgan Stanley shares fell 4%.