Why Morgan Stanley wants to buy E*Trade

It is the largest acquisition attempted by any of America’s six big banks since the crisis

“I THINK OF it like an aircraft-carrier,” said James Gorman, the boss of Morgan Stanley, last March. He described his bank’s wealth- and asset-management divisions as “ballast”, steadying the ship, because they bring in consistent, recurring revenues. The “engine room” is investment banking, which earns large, lumpy sums when markets are strong but can falter during a crisis. “We might be a little slower than some others, because we’re dragged by the ballast, but we’re more stable.

Mr Gorman wants even more ballast. On February 20th Morgan Stanley said that it planned to buy E*Trade, an online broking firm, for around $13bn, 34% above its market value the previous day. Morgan Stanley will acquire 5.2m retail customers with $360bn in assets and an online bank with $56bn of cheap deposits. After the merger is complete, wealth- and asset-management will have become the bank’s main business, making 57% of profits, up from just a quarter in 2010.

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