Morgan Stanley (NYSE: MS) made a big splash in mid-February when it announced plans to buy E*Trade (NASDAQ: ETFC) for $13 billion. The deal is still pending, but when it closes later this year, the investment bank will have more than $3 trillion in assets under management, including E*Trade's $360 billion, and an expanded presence in the digital brokerage and bank space.
Morgan Stanley got no significant stock bump from the news of the acquisition or a strong fourth quarter as the COVID-19 pandemic hit the broader market hard shortly after the Feb. 20 announcement. The company's stock price is down nearly 21% year to date, but where does it go from here?
In the long run, the E*Trade deal should be good for Morgan Stanley. It complements the company's wealth and investment management, which accounts for about 57% of the firm's earnings. That percentage has grown from 26% in 2010, which makes the firm more vulnerable to market fluctuations and the kind of economic slowdown we are seeing now. The more stable revenue stream from E*Trade is not as tied to the movements of the markets. The 5.2 million customer accounts E*Trade brings in to the company are made up of every-day, self-directed investors. The addition will give Morgan Stanley the foundation to compete in the arena for the "mass affluent" segment of the trading populace. As the first quarter showed -- when the company had a record number of new accounts with 363,214, a 169% increase over the previous year's first quarter -- it balances out Morgan Stanley's portfolio.
Source Fool.com