In one of the biggest Wall Street deals since the 2008 financial crisis, old-school investment bank Morgan Stanley (MS) - Get Report is buying 21st-century online trading giant E*Trade Financial (ETFC) - Get Report for about $13 billion in stock, or $58.74 a share.
The all-stock takeover combines one of Wall Street's oldest and most established firms with a modern-day discount broker that has arguably shaken and re-shaped the world of securities trading.
The deal, which is expected to close in the fourth quarter, is affirmation of ongoing - and arguably relentless - consolidation in the banking and money management industries, particularly online brokerage.
It also gives Morgan Stanley access to the lifeblood of new-age Wall Street: low-cost retail bank deposits, which all firms are competing for.
In late 2019, Charles Schwab (SCHW) - Get Report announced it would acquire TD Ameritrade (AMTD) - Get Report in a $26 billion all-stock deal, merging the two biggest publicly traded discount brokers that have more than $5 trillion in client assets combined, though leaving more traditional players behind.
Indeed, a combined Morgan Stanley-E*Trade raises the stakes for the likes of Goldman Sachs (GS) - Get Report, JPMorgan Chase (JPM) - Get Report and other established Wall Street investment banking firms who have taken strides to adapt to the digital banking, trading and money management age, albeit with varying degrees of reach and success.
“Between zero trading commissions and competitive yielding savings accounts and cash management products, the competition for consumers’ cash and investments is as fierce as ever," said Greg McBride, Chief Financial Analyst for Bankrate.com. "And this reaches a broad spectrum of households, it isn’t just the ultra wealthy that are in demand.”
A combined Morgan Stanley-E*Trade "increases wealth management scale, fills product and services gaps through complementary offerings, and enhances digital capabilities," Morgan Stanley and E*Trade said in a statement.
It also accelerates Morgan Stanley’s transition to a "more balance-sheet-light business mix, and more durable sources of revenue," the companies said.
E-Trade's deposits business will provide “significant funding benefits to Morgan Stanley,” Credit Suisse analysts said in a research note following the announcement.
E*Trade brings 5 million retail customers and $360 billion in assets to Morgan Stanley's coffer. Its CEO, Michael Pizzi, will run the e-brokerage business, which will also keep its E*Trade branding.
“E*Trade represents an extraordinary growth opportunity for our Wealth Management business and a leap forward in our Wealth Management strategy," Morgan Stanley CEO James Gorman said in the statement.
The combined platforms will have $3.1 trillion in client assets, 8.2 million retail client relationships and accounts, and 4.6 million stock plan participants, the companies said.
"The combination adds an iconic brand in the direct-to-consumer channel to our leading advisor-driven model, while also creating a premier Workplace Wealth provider for corporations and their employees."
E*Trade shares surged more than 25% to $56.26 in morning trading Thursday, while shares of Morgan Stanley dropped more than 3% to $54.36. Shares of TD Ameritrade gained 1.37% at $50.49, while shares of Charles Schwab rose 1.43% at $48.09.
Shares of Goldman Sachs were down 1.18% at $234.53, while shares of JPMorgan Chase were little changed at $137.44.