Why Morgan Stanley purchased E-Trade

CNBC's Hugh Son explains the reasoning behind Morgan Stanley's decision to acquire E-Trade in an all-stock deal.

Morgan Stanley, the tony investment bank for rich Americans and corporations, is making a play for the masses with its $13 billion takeover of discount brokerage pioneer E-Trade.

The move, announced early Thursday, is the biggest takeover by a U.S. bank since the financial crisis. It represents CEO James Gorman’s move to double down on his all-in bet on the U.S. wealth management industry. The New York-based bank is getting E-Trade’s 5.2 million customer accounts with $360 billion in assets and a leading business that manages corporate stock plans.

When the deal is completed, expected in the fourth quarter, Morgan Stanley will have broadened its franchise with a direct-to-consumer brokerage platform on top of its leading investment bank and army of high-end financial advisers catering to multimillionaires. Wealth management will make up almost 60% of the firm’s pretax profits, providing a counterweight to the more volatile Wall Street businesses like institutional trading of stocks and bonds.

Morgan Stanley “will look to couple their advisor-driven model with ETFC’s direct-to-consumer and digital capabilities,” Piper Sandler analyst Richard Repetto said in a note. “As a result this will widen, while potentially enhancing, MS’ current offerings.”

But perhaps most importantly, Morgan Stanley will gain access to E-Trade’s $56 billion in deposits. In the past, the bank has struggled to raise deposits to fund loans to its wealthy clientele, relying on high-interest CD promotions.

That will lower its funding costs by about $150 million, on top of the $400 million in other savings Morgan Stanley says the deal will bring.

But soon after the deal’s announcement, rivals wasted no time to claim that the bank overpaid for those deposits. Goldman Sachs has managed to raise a similar amount, over $50 billion, by organically developing its own Marcus business.



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[jaym]

Morgan Stanley, please get your act together. After acquiring ETrade, it now takes 1 or 2 hours on hold before speaking with a customer service representative and this has been going on for the past 6 months. Today, after talking to robots, 46 minutes on hold, a rep finally came on only to say he couldn't hear me and hung up! (longest hold time thus far: +2 hrs)

[fhowland]

Love E*TRADE. Loyal customer since 2008.

[letsburn]

It's slightly disingenuous to say technology is the main cause of the reduction in trading fees. The exchanges looking the other way on frontrunning(which is technically still illegal) has allowed many exchanges to reduce their costs so much.


I do wonder if this is simply another market top signal. A bunch of "me too" takeovers and transactions is a bad sign. When a bear market kicks in the volume will go down.

[sbfarmer]

nothing is free. what are they getting from us that is worth $7.00 to them?

[BTBLive]

Etrade has become terrible. Customer service and low sweep interest alone are reasons not to use this firm.

[truckernerd]

I'm trying to findout what will be my trade restrictions, trade fees, ect. I all ready know stocks under $5 are fees or restricted. I'm looking to move to TD, webul or Robin.

[eveyoung]

But will I get the same unlimited margin on eTrade that we get at Robinhood?

[Ray-eiro]

I cannot Logon ETrade to get to my account. Once I do, and I will ...i'm closing the account!

[Whatdafuk]

To manipulate markets, I'm sure the Fed loaned them the money. Lol $SPY ALL DAY BABY

[CC-klnh]

Morgan Stanley greeedy monster. Ever my stock split they charge you.