The companies have signed a definitive agreement, under which Morgan Stanley will buy E*Trade in an all-stock transaction, according to a joint press release.
The combined platforms will have $3.1 trillion in client assets, 8.2 million in retail client relationships and accounts, and 4.6 million in stock plan participants, according to the press release.
The combination increases wealth management scale, fills product and services gaps through complementary offerings, and enhances digital capabilities, the press release notes. The deal also positions Morgan Stanley as a top player across all three channels: financial advisory, workplace, and self-directed, according to both companies.
E*Trade has more than 5.2 million client accounts, representing $360 billion in assets, the company says. Morgan Stanley, meanwhile, has 3 million client accounts and $2.7 trillion in assets, according to the press release.
As a result of the acquisition, which is expected to close in the fourth quarter of 2020, Morgan Stanley’s wealth management business will make up around 57% of its pre-tax profits, “excluding potential synergies,” the press release says. A decade ago, that figure was just 26%, according to the press release.
“E*Trade’s products, innovation in technology, and established brand will help position Morgan Stanley as a top player across all three channels: financial advisory, self-directed and workplace,” James Gorman, chairman and CEO of Morgan Stanley, says in the press release. “In addition, this continues the decade-long transition of our firm to a more balance sheet light business mix, emphasizing more durable sources of revenue.”
E*Trade’s CEO, Michael Pizzi, will lead the combined entity’s e-brokerage unit, which is keeping its brand as well as its retail storefronts, Gorman tells the Journal. Pizzi is also joining Morgan Stanley Operating and Management Committees, while one of E*Trade’s independent directors will join Morgan Stanley’s board, Gorman says in the press release.
The deal will be the largest acquisition by a major U.S. bank since the 2008 financial crisis — and it puts Morgan Stanley, which has traditionally offered wealth management services to the wealthy, decidedly at the forefront of serving mass affluent investors, according to the Wall Street Journal.
“We’ll take on Schwab. We’ll take on Fidelity,” Gorman tells the paper in an interview. “This isn’t about legacy-building; it’s about getting [Morgan Stanley] ready for prime time.”
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