Shares of Morgan Stanley slumped 4.1% to $54.01 at 9:34 a.m. in New York, the biggest intraday decline in six months. E*Trade surged the most in almost 11 years, gaining 24% to $55.90. Gorman said he expects Morgan Stanley shares to rebound once investors start valuing the stock at a higher multiple over the long term.
For Morgan Stanley, the deal “deepens the ‘safe’ wealth-management franchise -- rich in fees and stability,” credit analyst David Havens at Imperial Capital wrote in a note to clients. “It reduces reliance on the more mercurial trading and markets businesses.”
E*Trade, founded in 1982, was one of the early players in the discount-brokerage industry. Its reach with self-guided traders online gives Morgan Stanley access to a broader customer base, including those who may have less to invest than its current clients.
Morgan Stanley will keep the E*Trade brand in some way, Gorman said on a conference call with analysts. “It’s something I think you’d be completely nuts to get rid of,” he said, comparing the brand’s worth to how valuable Merrill Lynch is to Bank of America Corp. and the Chase name is for JPMorgan Chase & Co.
Long seen as a potential takeover target for the likes of TD Ameritrade, E*Trade was left looking for ways to reinvent its image and lure more customers in the wake of its rival’s merger with Schwab. In a signal that it was on the hunt for acquirers, a January filing boosted compensation for executives in the event of a change in control.
JPMorgan served as the lead financial adviser to E*Trade, and Skadden, Arps, Slate, Meagher & Flom LLP was external legal counsel.
--With assistance from Annie Massa, Lananh Nguyen and Elizabeth Fournier.
This article was provided by Bloomberg News.