Morgan Stanley is to buy discount brokerage firm E-Trade in an all-share deal worth around $13bn (£10bn), the biggest deal by a major Wall Street bank since the financial crisis.
The deal will help Morgan Stanley boost its wealth management division, which chief executive James Gorman is trying to grow in order to help the lender better ride out weak periods in trading and investment banking.
The deal, which is expected to close in the fourth quarter of 2020, brings together $3.1 trillion of client assets.
E-Trade has over 5.2 million clients with over $360bn of retail client assets, which will be added to Morgan Stanley’s existing three million client relationships and $2.7 trillion of client assets.
“E-Trade represents an extraordinary growth opportunity for our wealth management business and a leap forward in our wealth management strategy,” said Gorman.
“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,” he added.
Shareholders in the brokerage firm will receive 1.0432 Morgan Stanley shares for each share as part of the deal. This translates to $58.74 per share, a premium of 30.7 per cent on their last closing price.
Shares in E-Trade shares jumped over 20 per cent in premarket trading before they were suspended, while Morgan Stanley fell as much as 3.21 per cent before the open.
The deal follows Charles Schwab’s $26bn purchase of rival discount brokerage TD Ameritrade last year.
There was speculation when the purchase was announced that E-Trade could be next to seek out a partner in the discount brokerage industry, which has come under increasing pressure amid the growth of zero commission trading.
E-Trade chief executive Mike Pizzi will join Morgan Stanley, the bank said, where he will continue to run the company within the Morgan Stanley franchise.
“We’ll take on Schwab. We’ll take on Fidelity,” Gorman told the Wall Street Journal, who first reported news of the deal.
“This isn’t about legacy-building; it’s about getting [Morgan Stanley] ready for prime time.”