E-Trade shareholders will get 1.0432 shares of Morgan Stanley stock for each unit they hold, according to a press release. The $360 billion in client assets held by E-Trade will be added to Morgan Stanley’s $2.7 trillion.
The takeover is a bid to expand the reach of Morgan Stanley’s wealth-management business to more retail clients, according to the release. While Morgan Stanley oversees far more money, E-Trade’s 5.2 million client accounts handily outpace Morgan Stanley’s 3 million.
“This continues the decade-long transition of our firm to a more balance-sheet-light business mix, emphasizing more durable sources of revenue,” James Gorman, the CEO of Morgan Stanley, said in a statement.
In recent years, many of Wall Street’s largest banks have pivoted toward more predictable sources of revenue, like wealth management and retail banking, as a counterweight to more revenue-volatile businesses like sales and trading.
Wealth- and investment-management businesses will account for about 57% of pretax profits after the acquisition, versus 26% in 2010, the statement said.
The deal comes after Charles Schwab rattled the brokerage industry last fall by announcing it would not charge fees on online trades. That kicked off a price war among brokerages, with E-Trade among the online brokers that followed suit and cut commissions to zero.
“The combination adds an iconic brand in the direct-to-consumer channel to our leading advisor-driven model, while also creating a premier Workplace Wealth provider for corporations and their employees,” Gorman said, adding that the acquisition would allow Morgan Stanley clients to manage their wealth through financial advisory, self-directed, or workplace channels.
As part of the agreement, Mike Pizzi, the CEO of E-Trade, will continue to run the business under Morgan Stanley’s auspices, and one of E-Trade’s independent directors will join the Morgan Stanley board of directors.