Morgan Stanley to buy E-Trade for $13 billion

Deal would be biggest takeover by a major American lender since the 2008 global financial crisis

Investment bank Morgan Stanley is buying E-Trade for $13 billion. The deal helps transform the stock-trading investment bank to a more well-rounded financial firm. Under CEO James Gorman, Morgan Stanley has shifted into new, more universal financial services that can bring in steady revenue. The strategy has worked. Morgan Stanley has been consistently hitting its financial goals and had record profits last year. Morgan Stanley will acquire E-Trade's $360 billion in assets and 5.2 million customers.

Morgan Stanley announced on Thursday that it would buy E-Trade, the online discount brokerage, for about $13 billion, in the biggest takeover by a major American lender since the 2008 global financial crisis.

The deal would give Morgan Stanley — long known as one of Wall Street’s most blue-chip names, whose asset management business caters to the wealthy — a big share of the market for online trading, an additional 5.2 million customer accounts and $360 billion in assets.

On Wall Street Thursday, stocks opened lower a day after indexes set their latest record highs, but E-Trade stocks soared after news of the takeover.

What it means

Thursday’s deal highlights the increasing convergence of Wall Street and Main Street.

Elite bastions of corporate finance are increasingly seeking to cater to customers with smaller pocketbooks. And online brokerages that once hoped to overthrow traditional trading houses are instead suffering from a price war that has slashed their profits.

It follows Morgan Stanley’s strategy of focusing on asset management rather than investment banking and high-stakes trading, betting on steady fees over bigger paydays and bigger risks.

“This continues the decadelong transition of our firm to a more balance-sheet-light business mix, emphasizing more durable sources of revenue,” James P. Gorman, Morgan Stanley’s chairman and chief executive, said in a statement.

Before the deal, Morgan Stanley’s $2.7 trillion in assets were largely tied to big companies and wealthy individuals.

The combination would unite Morgan Stanley’s “full-service, adviser-driven model” with E-Trade’s “direct-to-consumer and digital capabilities,” Gorman added.

Previous acquisition

The deal with E-Trade would not be Morgan Stanley’s first with a retail stock brokerage. It merged with Dean Witter Reynolds two decades ago, only for the marriage to founder amid a clash between Morgan Stanley’s Wall Street aristocrats and Dean Witter’s more down-market brokers.

Morgan Stanley’s traditional rival, Goldman Sachs, has also sought to court Main Street, in a different way. Goldman created a retail-focused lending arm, named Marcus, in 2016 and partnered with Apple last year to offer a credit card.

Last month, Goldman said that it intended to grow its retail deposit base to $125 billion, and its consumer loan and card balance to $20 billion, over the next five years.

E-Trade has struggled amid a price war among brokerages, begun in earnest last fall when Charles Schwab eliminated fees for the trading of stocks and exchange-trade funds. Schwab later agreed to buy TD Ameritrade for $26 billion.

What’s next

If the deal goes through — it needs the approval of E-Trade shareholders and regulators — more than half of Morgan Stanley’s pretax profits would come from wealth and investment management, compared with 26% a decade ago.

Under the terms of the deal announced on Thursday, Morgan Stanley will buy E-Trade using its own stock. Its offer is worth about $58.74 a share as of Wednesday’s market close, a 30% premium on the value of the online brokerage’s shares.

E-Trade’s chief executive, Michael Pizzi, would continue to run the business upon the deal’s closing, which is expected by year’s end.