Morgan Stanley’s $13 Billion E-Trade
Morgan Stanley has beaten Goldman Sachs to the biggest takeover by a major bank since the financial crisis. It links Wall Street to Main Street and helps Stan catch up with JP in the banking biz.
An online broker in turmoil, E-Trade has struggled to compete with Robinhood’s free commissions model. One-minute, the platform is swimming along without a care in the world. The next, Morgan Stanley (MS) is cleverly picking off its technologically disrupted assets on the cheap. American taxpayers will be glad to hear that $13 billion deals like this don’t break the bank, but what should investors make of it?
Morgan Stanley’s bread and butter is its deposit book. There, it records cheap funding used to issue new loans that, hopefully, earn more interest on a net basis. E-Trade brings with it over 56-billion-dollars of consumer deposits, a strong brand, and the additional income from those paying big fees to take dumb risks in the naked options markets.
The platform is also useful for selling investors expensive peripheral products and services, like financial advisory and exclusive analyst research. But there’s no such thing as a free lunch!
Billions of dollars are about to be added to Morgan Stanley’s balance sheet to reflect E-trade being absorbed. If the brokerage turns out not to be worth the money, then some of it may need ‘writing off.’ That would send Morgan Stanley’s shares tumbling.
CEO James Gorman isn’t worried. “We’ll take on Fidelity. We’ll take on Schwab. We’re strong now, and I believe you move from a position of strength!”