Amid a lot of conflicting news stories, Morgan Stanley recently announced that it wants to acquire the wealth and investment management firm, Eaton Vance Corp., and that it closed its acquisition of online, discount brokerage E*TRADE Financial Corp. — signs that Morgan Stanley and other Wall Street giants are trending toward safer waters than the raging oceans of securities trading.
On Oct. 8, Morgan Stanley and Eaton Vance officials announced that they have signed a definitive agreement that gives Morgan Stanley the right to acquire Eaton Vance, a provider of investment strategies and wealth management solutions “for an equity value of approximately $7 billion,” officials say. Eaton Vance has more than $500 billion in assets under management (AUM).
Morgan Stanley officials say that Eaton Vance acquisition is part of its strategic move to offer institutional securities, wealth management, and investment management.
“Morgan Stanley Investment Management (MSIM) will be a leading asset manager with approximately $1.2 trillion of AUM and over $5 billion of combined revenues. MSIM and Eaton Vance are highly complementary with limited overlap in investment and distribution capabilities,” according to Morgan Stanley.
The acquisition will “add more fee-based revenues to complement our world-class investment banking and institutional securities franchise,” says James P. Gorman, chairman and CEO of Morgan Stanley, in a prepared statement.
After regulatory review, the Eaton Vance acquisition is expected to close in the second quarter of 2021.
Days before the Eaton Vance news, Morgan Stanley completed its $13 billion acquisition of E*TRADE Financial Corp. in an all-stock transaction, which means that “E*TRADE common stockholders are entitled to receive 1.0432 Morgan Stanley common shares for each E*TRADE common share.”
By adding E*TRADE, Morgan Stanley becomes “an industry leader in wealth management across all channels and segments, and significantly increases the scale and breadth of our wealth management franchise, which now oversees $3.3 trillion in assets,” Gorman says.
The Morgan Stanley “pivot mirrors a broader shift in power and profits on Wall Street,” according to recent coverage in The Wall Street Journal. “The trading profits of the 2000s are long gone, sapped by new regulations and shifting investor preferences. Asset management, which produces steady fees and requires little capital to run, has become a priority for banks including Goldman Sachs Group.”
The New York Times in its DealBook coverage notes that the two moves show “the Wall Street stalwart’s move to less flashy — but steadier — fee-based businesses, a sign of the times for the financial industry as a whole.”
Underscoring what others have observed, the New York Post’s coverage pointed out that the pandemic-inspired lockdown spurred an unexpected windfall for Morgan Stanley via a “flurry of growth for E*TRADE as locked-down investment novices took to trading stocks amid the pandemic. E*TRADE added 327,000 retail accounts in the April-to-June quarter and saw its daily average revenue trades surge to a record of more than 1 million.”
Given that we’re in a time of volatility for the financial markets and politics, and societal changes are happening fast, it makes sense that Wall Street’s titans are looking for more predictable situations than capital markets.
But we are not headed to boredom yet. There are a lot of variables to be tested such as the retail and institutional impacts of crypto-currency-based instruments, the real-world uses of the crypto-derived distributed ledger technologies, and how all of these disruptions change things for those who work in securities operations.
We have no choice but to stay tuned.