Log in
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Dynamic quotes 

MarketScreener Homepage  >  Equities  >  Nyse  >  Morgan Stanley    MS


News SummaryMost relevantAll newsPress ReleasesOfficial PublicationsSector newsMarketScreener StrategiesAnalyst Recommendations

Morgan Stanley Is Buying E*Trade, Betting on Littler Customers

share with twitter share with LinkedIn share with facebook
share via e-mail
02/20/2020 | 07:39am EDT

By Liz Hoffman

Morgan Stanley is buying E*Trade Financial Corp. in a $13 billion deal that will reshape the storied investment bank and firmly stake its future on managing money for regular people.

The all-stock takeover, set to be announced Thursday, will combine a Wall Street firm in the late innings of a decadelong turnaround with a discount broker built on the backs of dot-com day traders. It is the biggest takeover by a giant U.S. bank since the 2008 crisis.

E*Trade brings five million retail customers, their $360 billion in assets and an online bank with cheap deposits that Morgan Stanley can funnel into loans. Its CEO, Michael Pizzi, is coming along to run the e-brokerage business, which will keep its brand, its handful of retail storefronts and its buzzy and well-funded ad campaigns, Morgan Stanley Chief Executive James Gorman said.

E*Trade's future has been uncertain since November, when its two main competitors, Charles Schwab Corp. and TD Ameritrade Holding Corp., announced their own merger. Schwab had thrown an elbow weeks before by cutting the trading fees it charges customers to zero. The move sent E*Trade shares tumbling and raised questions about whether the brokerage, dwarfed by a merged competitor, could survive alone.

Morgan Stanley already has 15,500 human advisers catering to millionaires and last year rolled out an online-only tool for customers with less money and less-complicated financial lives. E*Trade will slot into that wealth-management arm, which will have more than eight million users and $3.1 trillion in client money once the deal closes.

"We'll take on Schwab. We'll take on Fidelity," Mr. Gorman, now in his 10th year as CEO, said in an interview. "This isn't about legacy-building; it's about getting [Morgan Stanley] ready for prime time."

E*Trade became a household name in the late 1990s with its dot-com vibe and splashy Super Bowl commercials. Falling commissions have hurt its brokerage arm and low interest rates have cut into the money it makes by investing the idle cash its customers leave in their accounts.

Its crown jewel is a comparatively low-profile business: managing the stock that employees at hundreds of companies receive as part of their pay. Those shares are typically locked up for a few years and when they become available, E*Trade aims to move those employees into brokerage accounts.

Morgan Stanley has a competing business, which it expanded a year ago by acquiring Solium, a privately held specialist in the space. After buying E*Trade, Morgan Stanley would have more than 4,000 corporate customers and $580 billion of stock held on behalf of their employees who might, it hopes, one day be rich.

The takeover, code-named Project Eagle, is the largest deal by a major Wall Street player since the crisis, when regulators arranged hasty marriages in a bid to shore up the financial system. Few have been willing to test the waters in Washington since then.

That the test balloon comes from Morgan Stanley, the banking industry's weakling during the 2008 crisis and a problem child for years afterward, is a testament to its reinvention under Mr. Gorman. The 61-year-old has cut riskier trading operations and grown steadier businesses like lending and wealth management. Revenue hit a record $41 billion last year.

"We're strong now, and I believe you move from a position of strength," Mr. Gorman said.

He has sounded more acquisitive in recent months and floated a trial balloon with regulators and investors by buying Solium last year for $900 million. Morgan Stanley shares have gained 40% since September, giving him a more richly valued currency to shop with.

Mr. Gorman said he has been eyeing E*Trade since 2002, when he was an executive at Merrill Lynch. He reached out again in 2007, when he was tasked with fixing Morgan Stanley's brokerage arm, but negotiations wavered as E*Trade started to feel tremors of the coming meltdown in its portfolio of home-equity loans.

Talks this time around began in late December, when a two-hour conversation between Messrs. Gorman and Pizzi convinced both men of the deal's merits. Mr. Gorman said the tumult kicked off by Schwab made E*Trade "more open" to a deal but said he wasn't low-balling: The deal price of $58.74 a share, all in Morgan Stanley stock, is 34% higher than E*Trade's price before Schwab announced its fee cut.

Morgan Stanley expects to recoup that premium through $400 million of cost cuts and additional savings of $150 million from using E*Trade's low-cost deposits to replace more expensive funding. Mr. Gorman said he also sees an opportunity to take E*Trade international, where his firm has no wealth-management presence.

All of Wall Street is on the hunt for more reliable sources of revenue after postcrisis regulations and a long period of eerie calm in the markets crimped trading. JPMorgan Chase & Co. and Bank of America Corp. are getting bigger in payments, while Morgan Stanley's closest peer and fierce rival, Goldman Sachs Group Inc., is building an online retail bank.

Mr. Gorman is proving himself to be one of the savvier corporate deal makers. He pried wealth manager Smith Barney away for a song from a weakened Citigroup Inc. in the wake of the crisis. Here he seized on the brokerage price war to nab E*Trade.

Morgan Stanley has also been scouring takeover targets in asset management, where it is smaller and nichier than peers, people familiar with the matter have said.

The E*Trade acquisition is expected to close in the fourth quarter.

Write to Liz Hoffman at liz.hoffman@wsj.com


Stocks mentioned in the article
ChangeLast1st jan.
BANK OF AMERICA CORPORATION -4.93% 21.6 Delayed Quote.-38.67%
CITIGROUP INC. -4.82% 43.8 Delayed Quote.-45.17%
E*TRADE FINANCIAL CORPORATION -5.06% 33.98 Delayed Quote.-25.10%
JPMORGAN CHASE & CO. -7.12% 91.13 Delayed Quote.-34.63%
MORGAN STANLEY -4.76% 34.01 Delayed Quote.-33.47%
TD AMERITRADE HOLDING CORPORATION -1.51% 34.51 Delayed Quote.-30.56%
THE CHARLES SCHWAB CORPORATION -1.61% 33.61 Delayed Quote.-29.33%
THE GOLDMAN SACHS GROUP, INC. -4.49% 158.34 Delayed Quote.-31.14%
share with twitter share with LinkedIn share with facebook
share via e-mail
Latest news on MORGAN STANLEY
04:48aPRESSWIRE : Top Platform For Global Analytics Leaders Newly Acquired
03/28GOLDMAN SACHS : China Approves Goldman, Morgan
03/27MORGAN STANLEY : Receives Approval for Majority Ownership of its China Securitie..
03/27GLOBAL MARKETS LIVE: Businesses are lining up for government cash
03/27GOLDMAN SACHS : China Grants Approval for Goldman Sachs, Morgan Stanley to Contr..
03/26MORGAN STANLEY : Commits to No Staff Layoffs This Year
03/23MORGAN STANLEY : rates JBH as Equal-weight
03/23MORGAN STANLEY : rates CTX as Equal-weight
03/22MORGAN STANLEY : rates CSL as Equal-weight
03/22MORGAN STANLEY : rates WES as Equal-weight
More news
Financials (USD)
Sales 2020 40 559 M
EBIT 2020 10 876 M
Net income 2020 7 918 M
Debt 2020 141 B
Yield 2020 4,36%
P/E ratio 2020 6,65x
P/E ratio 2021 6,06x
EV / Sales2020 4,81x
EV / Sales2021 4,60x
Capitalization 54 391 M
Duration : Period :
Morgan Stanley Technical Analysis Chart | MarketScreener
Full-screen chart
Technical analysis trends MORGAN STANLEY
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 25
Average target price 53,35  $
Last Close Price 34,01  $
Spread / Highest target 123%
Spread / Average Target 56,9%
Spread / Lowest Target -5,91%
EPS Revisions
James Patrick Gorman Chairman & Chief Executive Officer
Jonathan M. Pruzan Chief Financial Officer & Executive Vice President
Robert Rooney Head-Technology, Operations & Firm Resilience
Hutham S. Olayan Independent Director
Robert H. Herz Independent Director
Sector and Competitors
1st jan.Capitalization (M$)
MORGAN STANLEY-33.47%54 391
CSC FINANCIAL CO., LTD.4.09%29 036