Morgan Stanley has acquired E Trade in an all-stock transaction valued at approximately $13 billion.

The combination will significantly increase the scale and breadth of Morgan Stanley’s Wealth Management franchise, as E Trade has over 5.2 million client accounts with over $360 billion of retail client assets – adding to Morgan Stanley’s existing three million client relationships and $2.7 trillion of client assets.

The deal will combine Morgan Stanley’s full-service, advisor-driven model with E Trade’s direct-to-consumer and digital capabilities.

E Trade provides a full suite of digital banking services, including direct integration with brokerage accounts, checking and high-yield savings accounts, significantly accelerating Morgan Stanley’s digital banking efforts. The transaction adds approximately $56 billion of low-cost deposits, which will provide funding benefits to Morgan Stanley.

Upon integration, the combined wealth and investment management businesses will contribute approximately 57 per cent of the firm’s pre-tax profits - excluding potential synergies - compared to only approximately 26 per cent in 2010.

Shareholders from both companies should benefit from potential cost savings estimated at approximately $400 million from maximizing efficiencies of technology infrastructure, optimising shared corporate services and combining the bank entities, as well as potential funding synergies of approximately $150 million from optimizing E Trade’s approximate $56 billion of deposits. In addition, Morgan Stanley will have technology and service capabilities to capture a larger portion of the estimated approximate $7.3 trillion of combined current customer assets held away, which could drive revenue opportunities.

Mike Pizzi, chief executive of E Trade will be joining Morgan Stanley, while continuing to run the business within the Morgan Stanley franchise and lead the ongoing integration effort.

He will report to James Gorman, chairman and chief executive of Morgan Stanley, who commented: “E Trade represents an extraordinary growth opportunity for our wealth management business and a leap forward in our strategy.

“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. 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.”

Pizzi added: “By joining Morgan Stanley, we will be able to take our combined offering to the next level and deliver an even more comprehensive suite of wealth management capabilities.”

Forrester senior analyst Vijay Raghavan commented: “In the wake of the price war that first started when Schwab got rid of stock trading commissions, E Trade was weakened because of its reliance on commissions - just like TD Ameritrade before it was acquired by Charles Schwab.

“Nearly half of E-trade’s customer base (48 per cent) is comprised of self-directed investors, who prefer robust trading tools, real-time market commentary, and charting tools, to name a few,” he continued.

“Morgan Stanley’s wealth management business serves an affluent investor base who comprise the delegator segment, relying on financial advisors to make investment decisions for them.”

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