Morgan Stanley to Buy E-Trade

By Todd Horwitz 

Morgan Stanley is buying E*Trade Financial Corp. in a $13 billion deal that will reshape the storied investment bank and firmly stake its future on managing money for regular people. The all-stock takeover, announced Thursday, will combine a Wall Street firm in the late innings of a decade long turnaround with a discount broker built on the backs of dot-com day traders. It is the biggest takeover by a giant U.S. bank since the 2008 crisis.

E*Trade brings five million retail customers, their $360 billion in assets and an online bank with cheap deposits that Morgan Stanley can funnel into loans. Its CEO, Michael Pizzi, is coming along to run the e-brokerage business, which will keep its brand, its handful of retail storefronts and its buzzy and well-funded ad campaigns, Morgan Stanley Chief Executive James Gorman said.

The deal highlights the increasing convergence of Wall Street and Main Street: Elite bastions of corporate finance are seeking to cater to customers with smaller pocketbooks, and online brokerage firms that once hoped to overthrow traditional trading houses are instead suffering from a price war that has slashed their profits.

It also reflects a continuing shift in strategy for Morgan Stanley, which long relied on fees from high-finance services like mergers, stock offerings and massive trading desks but has lately embraced steady fees over bigger paydays and bigger risks.

Under Mr. Gorman, who has led the bank for a decade, Morgan Stanley has de-emphasized the businesses of jet-setting investment bankers and aggressive Manhattan traders, preferring the predictable and less costly realm of wealth management. It’s a strategy playing out all along Wall Street: In the dozen years since the start of the financial crisis, major financial firms from Credit Suisse to Goldman Sachs have embraced what are considered lower-risk business lines.

“This continues the decade-long transition of our firm to a more balance-sheet-light business mix, emphasizing more durable sources of revenue,” said Mr. Gorman, whose most transformative deal at Morgan Stanley before Thursday was its acquisition of Smith Barney’s retail brokerage firm in 2012.

Todd “Bubba” Horwitz