If approved, the transaction would give Morgan Stanley both direct-to-consumer and digital capabilities to compete more aggressively with Merrill Edge and other mass-affluent offerings from rivals. (Photo: Shutterstock)
Morgan Stanley is buying discount broker E-Trade Financial for $13 billion, creating a firm that could have over $3 trillion in client assets.
The news comes three months after Charles Schwab said it was acquiring TD Ameritrade for $26 billion. That merger, now going through antitrust review, would potentially lead to a combined firm with $5 trillion in assets.
"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 a statement.
If approved, the transaction would give Morgan Stanley both direct-to-consumer and digital capabilities to compete more aggressively with Merrill Edge and other mass-affluent offerings from rivals. Morgan Stanley's 15,500 financial advisors focus more on high-net-worth and ultra-high net worth clients.
"This continues the decade-long transition of our firm to a more balance-sheet-light business mix, emphasizing more durable sources of revenue," Gorman said.
'Hefty price'
Not everyone agrees with Morgan Stanley's rosy view of the deal.
"They'll be writing a big chunk of this down in the coming years. There's nothing here. Imagine acquiring customers who don't plan to pay you for anything?" said Josh Brown, CEO of Ritholtz Wealth Management, on Twitter.
"It's a pretty hefty price," Alison Williams, an analyst at Bloomberg Intelligence, said on Bloomberg Television, adding that the move "is consistent with Morgan Stanley's strategy" to push further into the mass-affluent market.
But credit analyst David Havens at Imperial Capital said in a note to clients that the deal "deepens the 'safe' wealth management franchise — rich in fees and stability" and "reduces reliance on the more mercurial trading and markets businesses."
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Janet Levaux
Editor-in-Chief Janet Levaux has covered the financial markets since 1991, with a focus on financial advisors since 2005. After graduating from Yale and the Johns Hopkins School of Advanced International Studies (SAIS), where she studied global economics, Janet worked as a freelance financial and business writer in Japan, and then as a reporter and editor for Investor's Business Daily and the Bay Area News Group in California. She earned an MBA in 2007 and since then has helped lead key ThinkAdvisor projects like its Neal-Award winning reporting on Ken Fisher, Luminaries awards program and Women in Wealth newsletter.
