By Liz Hoffman

Morgan Stanley said it is buying fund manager Eaton Vance for $7 billion just days after completing its takeover of discount broker E*Trade Financial Corp., continuing the firm's shift away from trading toward steadier, simpler businesses like money management.

The deal would nearly double the assets that Morgan Stanley manages on behalf of pension funds, insurance companies and other clients, to $1.2 trillion, and add about $1.7 billion of annual revenue.

Morgan Stanley's asset-management arm is the most profitable of the bank's four divisions but also its smallest, and had been seen as too niche to compete with larger rivals.

Boston-based Eaton Vance, founded in 1924, brings about $500 billion in assets and bulks up Morgan Stanley's undersized presence in bonds and sustainable investing.

Morgan Stanley Chief Executive James Gorman said Eaton Vance executives approached his firm a few months ago and found a receptive buyer, but that the bank needed to complete its takeover of E*Trade first, which it did last week.

Morgan Stanley's retail brokerage already is the largest distributor of Eaton Vance funds, Mr. Gorman said. And there are opportunities to take Eaton Vance's funds, which are mostly sold in the U.S., abroad where Morgan Stanley is bigger.

"It was sort of obvious," Mr. Gorman said in an interview. "If we didn't do this someone else would have."

Eaton Vance shareholders will receive $56.50 a share in cash and stock, a 40% premium that is likely to raise Morgan Stanley's own investors' eyebrows.

"A lot of people in January 2009 told me the premium [Morgan Stanley was paying] for [brokerage] Smith Barney was too high," Mr. Gorman said Thursday, referring to a takeover early in his tenure that is now widely seen as a home run. Of the Eaton Vance deal, he said: " fully priced, but I'm totally comfortable."

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The deal is expected to be completed in the second quarter of 2021.

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

(END) Dow Jones Newswires

10-08-20 0903ET