Morgan Stanley (NYSE: MS) announced on Thursday 20th of February that it is acquiring E-TRADE Financial Corporation (NASDAQ: ETFC), a leading financial brokerage company, in an all-stock transaction valued $13 billion. The definitive agreement conveys E-Trade shareholders will receive 1.0432 Morgan Stanley shares for each E-Trade share.
Under the terms of the agreement, the brokerage firm shareholders will be paid $58.74 per share in stock, based on the closing price of Morgan Stanley’s shares on Wednesday 19th of February. The platforms will reach $3.1 trillion in assets, 8.2 million retail client’s relationships and 4.6 million stock plan participants.
The combination of 5.2 million client relationships with $360 billion of assets of E-Trade and 3 million client accounts over $2.7 trillion of assets, already present in Morgan Stanley, will assure the firm to offer the best-in-class products and services, bolstering the realm of Wealth Management. Remarkable upside potential for shareholders of both companies include potential cost savings estimated at $400 million through the optimization of technology infrastructure and shared corporate services, in addition to $150 million of funding synergies from optimizing E-TRADE deposits.
The stable deposits and the durable online brokerage revenue streams make the transaction attractive also in terms of financial stability from the regulators’ perspective. The CFO of Morgan Stanley, Jonathan Pruzan expects E-trade deal will also result in an advantage for the federally mandated stress test. A quota of 30 basis points is estimated to increase the current reported Common Equity Tier 1 capital ratio of 16.4%. Common Equity Tier 1 capital ratio represents a necessary measurement to value whether a bank has the regulators’ permission to pay dividends and buy back shares, foreshadowing in these terms the bank’s financial strength.
In the press release James Gorman, Chairman and CEO of Morgan Stanley, said the acquisition of the brokerage firm will guarantee the Wall Street’s investment bank a top player position across all three channels: Financial Advisory, Self-Directed and Workplace, filling through complementary offerings product and services gaps and enhancing digital capabilities. The noteworthy synergies will give rise to shareholder value creation and stronger financial performance.
The origins of the deal are dated to 2002 according to James Gorman, with extensive negotiations recommencing again in 2007 and expected to close in the fourth quarter of 2020 with the biggest takeover by a U.S. Bank since the Financial Crisis. The acquisition will open the firm to a new demographic of younger clients, reaching about 8 million of retail client relationships and accounts in the combined platforms. If the deal goes through, it will give Morgan Stanley a big proportion of online trading market and allow to attract the mass affluent smaller-volume trades.
The acquisition emphasizes a striking convergence between Wall Street and online brokerage firms: on one side, investment banks are seeking to attract retail investors wealthy enough to have some savings but with inconsistent pocketbooks to buy into hedge funds. On the other side online brokerage firms’ profits are suffering the price war on the commission fees. The increasing pressure over fees in online brokerage has started since Schwab (SCHW) slashed commission fees to zero in October, pushing other major players to follow the zero commission fees as well.
E-Trade represented for Morgan Stanley an attractive target: E-TRADE Financial and its subsidiaries offered brokerage and banking products and services to traders and investors. The online brokerage firm suffered from the slushed fees and from the recent $26 billion merger of its main rivals, Charles Schwab (SCHW) and TD Ameritrade (AMTD). Mike Pizzi, the CEO of E-Trade, will join the Morgan Stanley Operating and Management Committees, continuing to run E-Trade business in an effort of integration with Morgan Stanley. One of the brokerage firm independent directors will be welcomed to join Morgan Stanley’s board.
“The deal continues the decade-long transition of the firm to a more balance-sheet-light business mix, emphasizing more durable sources of revenue”, told the CEO and chairman of Morgan Stanley in the press release. Under Mr. Gorman, Morgan Stanley de-emphasized the business of high-finance services including stock offerings, mergers, preferring steady fees coming from the less risk-costly realm of wealth management. Upon the acquisition, 57% of the Firm’s pre-tax profits are estimated to come from Wealth and Investment management, a striking difference in comparison with 26% registered from the same segment 10 years before.
Chief Financial Officer Jonathan Pruzan has revealed Morgan Stanley will be looking up to new deals and acquisition, after completing the $13 billion transaction, in order to add products or regions for Wealth and Investment management unit. The aim is to expand its customer base reaching younger people through online banking, helping them to consolidate loans, managing a budget and building short-term savings.
However, Morgan Stanley isn’t the only firm implementing strides to offer services across different wealth and age range. In 2019, Goldman Sachs acquired United Capital Financial Partners Inc., reaching a high net worth target of clients in possession of assets from $1 million to $15 million, and launched the online retail bank, Marcus, partnering with Apple on a new tech credit card.
Greis Gaeta
Under the terms of the agreement, the brokerage firm shareholders will be paid $58.74 per share in stock, based on the closing price of Morgan Stanley’s shares on Wednesday 19th of February. The platforms will reach $3.1 trillion in assets, 8.2 million retail client’s relationships and 4.6 million stock plan participants.
The combination of 5.2 million client relationships with $360 billion of assets of E-Trade and 3 million client accounts over $2.7 trillion of assets, already present in Morgan Stanley, will assure the firm to offer the best-in-class products and services, bolstering the realm of Wealth Management. Remarkable upside potential for shareholders of both companies include potential cost savings estimated at $400 million through the optimization of technology infrastructure and shared corporate services, in addition to $150 million of funding synergies from optimizing E-TRADE deposits.
The stable deposits and the durable online brokerage revenue streams make the transaction attractive also in terms of financial stability from the regulators’ perspective. The CFO of Morgan Stanley, Jonathan Pruzan expects E-trade deal will also result in an advantage for the federally mandated stress test. A quota of 30 basis points is estimated to increase the current reported Common Equity Tier 1 capital ratio of 16.4%. Common Equity Tier 1 capital ratio represents a necessary measurement to value whether a bank has the regulators’ permission to pay dividends and buy back shares, foreshadowing in these terms the bank’s financial strength.
In the press release James Gorman, Chairman and CEO of Morgan Stanley, said the acquisition of the brokerage firm will guarantee the Wall Street’s investment bank a top player position across all three channels: Financial Advisory, Self-Directed and Workplace, filling through complementary offerings product and services gaps and enhancing digital capabilities. The noteworthy synergies will give rise to shareholder value creation and stronger financial performance.
The origins of the deal are dated to 2002 according to James Gorman, with extensive negotiations recommencing again in 2007 and expected to close in the fourth quarter of 2020 with the biggest takeover by a U.S. Bank since the Financial Crisis. The acquisition will open the firm to a new demographic of younger clients, reaching about 8 million of retail client relationships and accounts in the combined platforms. If the deal goes through, it will give Morgan Stanley a big proportion of online trading market and allow to attract the mass affluent smaller-volume trades.
The acquisition emphasizes a striking convergence between Wall Street and online brokerage firms: on one side, investment banks are seeking to attract retail investors wealthy enough to have some savings but with inconsistent pocketbooks to buy into hedge funds. On the other side online brokerage firms’ profits are suffering the price war on the commission fees. The increasing pressure over fees in online brokerage has started since Schwab (SCHW) slashed commission fees to zero in October, pushing other major players to follow the zero commission fees as well.
E-Trade represented for Morgan Stanley an attractive target: E-TRADE Financial and its subsidiaries offered brokerage and banking products and services to traders and investors. The online brokerage firm suffered from the slushed fees and from the recent $26 billion merger of its main rivals, Charles Schwab (SCHW) and TD Ameritrade (AMTD). Mike Pizzi, the CEO of E-Trade, will join the Morgan Stanley Operating and Management Committees, continuing to run E-Trade business in an effort of integration with Morgan Stanley. One of the brokerage firm independent directors will be welcomed to join Morgan Stanley’s board.
“The deal continues the decade-long transition of the firm to a more balance-sheet-light business mix, emphasizing more durable sources of revenue”, told the CEO and chairman of Morgan Stanley in the press release. Under Mr. Gorman, Morgan Stanley de-emphasized the business of high-finance services including stock offerings, mergers, preferring steady fees coming from the less risk-costly realm of wealth management. Upon the acquisition, 57% of the Firm’s pre-tax profits are estimated to come from Wealth and Investment management, a striking difference in comparison with 26% registered from the same segment 10 years before.
Chief Financial Officer Jonathan Pruzan has revealed Morgan Stanley will be looking up to new deals and acquisition, after completing the $13 billion transaction, in order to add products or regions for Wealth and Investment management unit. The aim is to expand its customer base reaching younger people through online banking, helping them to consolidate loans, managing a budget and building short-term savings.
However, Morgan Stanley isn’t the only firm implementing strides to offer services across different wealth and age range. In 2019, Goldman Sachs acquired United Capital Financial Partners Inc., reaching a high net worth target of clients in possession of assets from $1 million to $15 million, and launched the online retail bank, Marcus, partnering with Apple on a new tech credit card.
Greis Gaeta