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Why E*Trade Financial Stock Jumped More Than 20% Today

By Joe Tenebruso - Feb 20, 2020 at 6:39PM

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The discount brokerage is being acquired by a larger competitor.

What happened

Shares of E*Trade Financial (ETFC) surged by nearly 22% on Thursday after news broke that it had struck a deal to be acquired by Morgan Stanley (MS 0.91%).

So what 

Morgan Stanley agreed to purchase E*Trade for $13 billion. The all-stock deal will see E*Trade shareholders receive 1.0432 shares of Morgan Stanley for each share of E*Trade that they own. Based on closing prices on Feb. 19, that equates to an approximately 30% premium to the level at which E*Trade stock had traded prior to news of the deal.

The merger is expected to help Morgan Stanley scale its wealth management business. E*Trade has more than 5.2 million client accounts with over $360 billion in assets, including $56 billion in low-interest deposits. The deal is also expected to bolster Morgan Stanley's direct-to-consumer trading technology and, by extension, help it appeal to more individual investors who like to purchase stocks and bonds without advisor support.

"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," E*Trade CEO Mike Pizzi said in a press release. "Bringing E*Trade's brand and offerings under the Morgan Stanley umbrella creates a truly exciting wealth management value proposition and enables our collective team to serve a far wider spectrum of clients."

A person pointing to a sharply upward sloping line above a relatively flat line

E*Trade's shares popped on Thursday. Image source: Getty Images.

Now what

This deal was brought about in part by Charles Schwab's (SCHW 1.17%) move to eliminate stock-trading commissions -- a significant source of many brokers' revenue -- in October. A wave of industry consolidation ensued, and after Charles Schwab made a bid to acquire rival discount brokerage TD Ameritrade (AMTD) in November, E*Trade was seen as the next likely takeover candidate. Now, it appears, E*Trade has finally found a suitor.

Morgan Stanley's acquisition of E*Trade is expected to close in the fourth quarter of 2020, pending regulatory and shareholder approval. However, it's possible that politicians could push for the deal to be blocked, particularly in an election year in which many Democrats have criticized Wall Street for its excesses. 

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Stocks Mentioned

E*TRADE Financial Corporation Stock Quote
E*TRADE Financial Corporation
ETFC
The Charles Schwab Corporation Stock Quote
The Charles Schwab Corporation
SCHW
$63.92 (1.17%) $0.74
TD Ameritrade Holding Corporation Stock Quote
TD Ameritrade Holding Corporation
AMTD
Morgan Stanley Stock Quote
Morgan Stanley
MS
$76.75 (0.91%) $0.69

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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