Morgan Stanley CEO James Gorman has been obsessed for years with pulling the trigger on one trade —a splashy deal for online brokerage firm E-Trade (ETFC).
Well, he executed that trade at long last on Thursday, agreeing to buy E-Trade for $13 billion in Morgan Stanley’s stock (MS).
Gorman told analysts on a conference call he originally tried to buy E-Trade back in 2002 when he ran Merrill Lynch’s brokerage business. Then he kicked the tires again in 2007 while still a new hire at Morgan Stanley, serving as chief operating officer of the global wealth management business.
In both instances, the timing was off, Gorman suggested.
Talks this go around between Gorman and his counterpart at E-Trade Michael Pizzi reportedly picked back up in December. No wonder why this writer frequently noticed Gorman seemingly in the zone mentally while walking the halls in Davos at the World Economic Forum last month — clearly lots on his mind with this deal.
Morgan Stanley declined to make Gorman available to Yahoo Finance for an interview.
The transaction is the largest for a major bank since the 2008 financial crisis. It comes amidst an upheaval in the financial services industry amid pressured fees for advisors thanks to passive investing and zero cost trades at brokerage houses. Late last year, Charles Schwab scooped up TD Ameritrade in a $26 billion deal. This week, Franklin Resources agreed to buy rival Legg Mason for $4.5 billion.
On the call, Gorman and Pizzi pitched the combination as a great way to expand the company’s reach in wealth management services and access lower cost funding. Pizzi will stay on as CEO of E-Trade, join Morgan Stanley’s operating committee, report directly to Gorman and lead the integration. If Pizzi pulls off a successful integration, one can’t rule him out as a successor to Gorman who has been at the firm for 10 years.
Morgan Stanley’s stock fell 4% on the news as some investors weren’t too keen on Gorman using all stock to fund the E-Trade deal. E-Trade shares soared 25%.
“I think it’s desperation,” Cresset Chief Investment Officer Jack Ablin said of the deal on Yahoo Finance’s The First Trade. Ablin is cautious on the longer term outlook for the deal given the the push to zero cost trades at the brokerage houses and pressure on advisor fees inside wealth management firms.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.