The Next Big Brokerage Buyout?

Morgan Stanley is buying E*Trade in one of the largest financial-sector takeovers since the 2008 financial crisis. Today, Wealth Daily contributor Samuel Taube discusses why so many online brokerages are getting bought up and how to profit from this trend. Morgan Stanley is buying E*Trade in one of the largest financial-sector takeovers since the 2008 financial crisis. Today, Wealth Daily contributor Samuel Taube discusses why so many online brokerages are getting bought up and how to profit from this trend. [Wealth Daily logo] The Next Big Brokerage Buyout? [Samuel Taube Photo] By [Samuel Taube]( Written Feb. 23, 2020 Generally, when one large financial institution eats another one in a sudden takeover deal it’s a sign that things are going south economically. After all, when most people think of big financial mergers, they think of the chaotic series of Wall Street bankruptcies, mergers, and takeovers that heralded the 2008 financial crisis. But last week, one of the world’s largest banks, Morgan Stanley (NYSE: MS), announced a plan to take over one of the world’s largest online brokerages, E*Trade (NASDAQ: ETFC), for $13 billion. And this time, the reason for the mega-merger is a very good thing for investors. Morgan Stanley is buying E*Trade in the latest sweeping change to the brokerage industry. The deal comes just months after Charles Schwab (NYSE: SCHW) announced plans to merge with TD Ameritrade (NASDAQ: AMTD) in a $26 billion deal. Let’s take a look at why large online brokerages are merging or getting snapped up by banks — and how you can profit from this growing trend. Only 1% of Investors Know About Wall Street’s “Blacklist” There's a hidden list of shares the big banks are dying to get their hands on... but aren’t allowed to access. And if you ever owned a mutual fund or 401(k) account, you’ve probably had these shares withheld from you without realizing it... But it’s perfectly legal for individual investors like you to own them... as long as you know the secret to getting in. You don’t need ANY special skills, a special account, or permission to legally access these “blacklisted” shares. [Click here now to get the full list...]( Why Morgan Stanley Is Buying E*Trade for $13 Billion These rapid changes in the online brokerage space are just one part of a larger trend in the financial services industry, a turn toward services that cater to smaller customers like individual retail investors. This trend has given rise to new innovations like the fractional share purchase programs offered by Fidelity, Robinhood, and Charles Schwab. Now one of Wall Street’s biggest investment banks is making its own effort to diversify beyond its underperforming advisory business for affluent and institutional clients — and into retail investing services for average Joe’s. Its purchase of E*Trade provides a perfect vehicle for this diversification, as 48% of the online brokerage’s customers are small, self-directed investors like you and me. CEO James Gorman spelled out Morgan Stanley’s thinking in a press release announcing the deal. “This [purchase of E*Trade] continues the decade-long transition of our firm to a more balance sheet light business mix, emphasizing more durable sources of revenue,” he said. Morgan Stanley’s push for smaller customers is a big part of the reason why this deal happened, but it’s also worth considering E*Trade’s motivations. After all, there’s another large trend in the financial services industry that is encouraging brokerages to find buyers… Online Brokerages Are Ditching Trading Commissions Last October, I wrote about how [Charles Schwab’s decision to get rid of online trading commissions]( would lead to similar moves throughout the online brokerage industry. The discount online brokerage, which is the oldest and largest firm of its kind, has transitioned to a business model based on revenues from mutual fund expense ratios and short-term lending. Thus, it doesn’t need to charge its customers a fee for each trade anymore. But when it ditched the trading commission business model, it rendered its rivals (brokerages that do rely on commissions as primary sources of revenue) uncompetitive. In the wake of Schwab’s announcement, E*Trade, TD Ameritrade, and Interactive Brokers (NASDAQ: IBKR) all announced their own plans to cut commissions to zero in order to keep up. However, this business model was clearly unsustainable for these firms. Each one drew at least a third of its revenues from commissions at the time. In order to survive this major shift in the financial services world, brokerages like E*Trade need to find buyers with more robust business models — for example, a large investment bank like Morgan Stanley. In summary, Morgan Stanley’s purchase of E*Trade is a win-win for the two firms, and it’s unlikely to be the last online brokerage buyout. [This Machine Can Save a Million Lives in Less than 60 Minutes]( It detects viruses like coronavirus, SARS, and swine flu. It also detects bacterial threats like E. coli, listeria, and staph infection. Threat of outbreaks could send this machine’s $1 shares to $20 or more in the weeks ahead. This machine can save millions of lives. Billions of dollars. It can even save the lettuce in your refrigerator... This emergency situation is unfolding fast, so we don’t have much time — [click here for the full story.]( The Next Online Brokerage Buyout? E*Trade shares shot up by about 24% on the merger announcement, while Morgan Stanley shares slumped by about 4%. This is par for the course when one publicly traded company buys another; the acquirer sees a dip in its share price while the target sees a boost. But the announcement had a dramatic effect on one other firm that isn’t involved in the deal: E*Trade rival Interactive Brokers. It saw shares rise 3% in the wake of Morgan Stanley's announcement. That’s because, in the wake of the Schwab-TD merger and the Morgan Stanley-E*Trade buyout, Interactive Brokers is the last of its kind. It’s the last freestanding online brokerage firm, and it’s still facing the same zero-commission dilemma as the rest of the industry. With that in mind, it’s likely to receive its own acquisition bid in the coming months, and Wall Street is already pricing a takeover premium into its share price. All in all, investors are getting a sweet deal from the changes affecting the brokerage industry. Not only are we in the process of saying goodbye to trading commissions, we also have an opportunity to make a quick and easy gain on the next online brokerage buyout. Until next time, [Monica Savaglia] Samuel Taube Samuel Taube brings years of experience researching ETFs, cryptocurrencies, muni bonds, value stocks, and more to [Wealth Daily](. He has been writing for investment newsletters since 2013 and has penned articles accurately predicting financial market reactions to Brexit, the election of Donald Trump, and more. Samuel holds a degree in economics from the University of Maryland, and his investment approach focuses on finding undervalued assets at every point in the business cycle and then reaping big returns when they recover. To learn more about Samuel, [click here](. Enjoy reading this article? [Click here]( to like it and receive similar articles to read! Browse Our Archives [Elon Musks Throws Hissy Over Bill Gates' Car Choice]( [The ONE Thing Pelosi and Trump Agree On]( [Teens Are Still Vaping, Companies Are Still Reaping the Rewards]( [What Happens If the Government Buys Nokia and Ericsson Stock?]( [My Favorite 5G Stock]( --------------------------------------------------------------- This email was sent to {EMAIL}. It is not our intention to send email to anyone who doesn't want it. If you're not sure why you've received this e-letter, or no longer wish to receive it, you may [unsubscribe here](, and view our privacy policy and information on how to manage your subscription. To ensure that you receive future issues of Wealth Daily, please add newsletter@wealthdaily.com to your address book or whitelist within your spam settings. For customer service questions or issues, please contact us for assistance. [Wealth Daily](, Copyright © 2020, [Angel Publishing LLC](. All rights reserved. 111 Market Place #720 Baltimore, MD 21202. The content of this site may not be redistributed without the express written consent of Angel Publishing. Individual editorials, articles and essays appearing on this site may be republished, but only with full attribution of both the author and Wealth Daily as well as a link to www.wealthdaily.com. Your privacy is important to us -- we will never rent or sell your e-mail or personal information. [View our privacy policy here.]( No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. [Wealth Daily]( does not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question.