Morgan Stanley Agrees $13 Billion E*TRADE Purchase

Tom Burroughes

21 February 2020

in a $26 billion transaction. Discount brokerage competition is fierce. The rise of low-cost “passive” investing entities such as exchange traded funds, driven by resistance to higher-cost actively managed funds after a long bull market, and regulatory costs, has squeezed margins. At this end of the financial field, pressure for consolidation and more efficiency is intense.

As part of the transaction, Mike Pizzi, CEO of E*TRADE, has joined Morgan Stanley and continues to run the E*TRADE business within the Morgan Stanley franchise and lead the integration effort. Pizzi will report to Gorman and join the Morgan Stanley operating and management committees.

Cutting-edge
“Since we created the digital brokerage category nearly 40 years ago, E*TRADE has consistently disrupted the status quo and delivered cutting-edge tools and services to investors, traders, and stock plan administrators,” Pizzi said.

The combination, the firms said, will “create a leading player” in Morgan Stanley’s Workplace Wealth suite of offerings, combining E*TRADE’s US stock plan business with Shareworks by Morgan Stanley, a provider of public stock plan administration and private cap table management solutions.

“This combination will enable Morgan Stanley to accelerate initiatives aimed at enhancing the workplace offering through online brokerage and digital banking capabilities, providing a significantly enhanced client experience,” Morgan Stanley said.

Cost savings
Morgan Stanley said that the firms will achieve about $400 million in cost savings by efficiencies in technology, by blending banking facilities, and by funding “synergies of about $150 million from making optimum use of E*TRADE’S approximate $56 billion in deposits.

“Morgan Stanley will be better positioned to generate attractive financial returns through increased scale, improved efficiency, higher margins, stronger returns on tangible common equity, and long-term earnings accretion,” the bank said.