Morgan Stanley agreed to buy discount brokerage E-Trade Financial Corp. for $13 billion, pushing further into the retail market in the biggest acquisition by a Wall Street firm since the financial crisis.
The all-stock takeover adds E-Trade’s $360 billion of client assets to Morgan Stanley’s $2.7 trillion, the companies said Thursday in a statement. Morgan Stanley also gets E-Trade’s direct-to-consumer and digital capabilities to complement its full-service, advisory focused brokerage.
“Our clients increasingly want digital access and digital banking, and their clients want wealth-management advice,” CEO James Gorman said in an interview. “It’s the continuing evolution of Morgan Stanley into a stable, well-diversified business.”
In reshaping the firm since the financial crisis, Mr. Gorman has been emphasizing Morgan Stanley’s wealth-management powerhouse. Purchasing E-Trade helps him add clients who are less wealthy than its traditional customers. The New York-based company has lost some business to the retail brokerages in recent years as those firms invested heavily in their web platforms.
In its fourth quarter earnings, Morgan Stanley reported that assets under management for fee-playing clients in the wealth-management unit was $1.267 trillion, as of Dec. 31, and AUM for its investment management unit was $552 billion.
“Wall Street banks continue to covet Main Street customers,” Greg McBride, an analyst at Bankrate.com, said in an email. The acquisition “gives them access to brokerage customers, employees with company stock, and the lifeblood of financial services — low-cost retail bank deposits.”
The retail-brokerage industry is being reshaped by price wars and consolidation. In early October, Charles Schwab Corp. eliminated commissions for U.S. stock trading, spurring other brokerages to follow suit and sweeping away an important revenue stream.
The following month, Schwab agreed to buy rival TD Ameritrade Holding Corp. for about $26 billion and create a mega-firm with $5 trillion in assets, forcing smaller brokerages like E-Trade to contend with a much more formidable competitor.