If Morgan Stanley was once a Ferrari, it’s now embracing life as a Volvo, and it’s not the only one. The Wall Street firm’s $13 billion bid for E*Trade Financial, the online brokerage platform that serves armchair investors, is about as unracy as it gets for erstwhile masters of the universe. That’s how it should be. Being a giant financial conglomerate is boring, and profitably so.

Morgan Stanley’s trading floor survived the financial crisis where others didn’t, but after mortgage trading nearly derailed the firm, former bond salesman John Mack handed the reins to current boss James Gorman. Under him Morgan Stanley has traced a less volatile path, swapping proprietary trading for more reliable wealth management. It’s more pedestrian, but that’s the point.

Going into mass-market trading makes sense because serving institutional clients is only getting tougher. Wall Street’s five biggest firms have kept their trading revenue roughly flat for the best part of a decade at around $20 billion a quarter, but only because they have absorbed share from others. Institutional equity trade commission payments fell almost 50% from their peak in 2009 through mid-2019, according to research from Greenwich Associates. The rise of passively managed funds has hit mutual funds and hedge funds who patronize Wall Street trading desks.

Taking on millions of retail investors used to paying zero fees doesn’t help in itself, but being able to use their deposits as inexpensive funding does – as does E*Trade’s business of managing employee stock plans. Other firms are also looking to businesses once seen as unexciting to juice up their returns. Goldman Sachs is taking on Citigroup and JPMorgan in transaction banking, a busy but adrenaline-free corner of Wall Street. Bankers crave excitement, but investors crave comfort, and they now call the shots.

CONTEXT NEWS

- Morgan Stanley said on Feb. 20 it had agreed to buy discount brokerage E*Trade Financial in an all-stock deal worth about $13 billion, the biggest acquisition by a Wall Street bank since the financial crisis.

- The brokerage’s shareholders will receive 1.0432 Morgan Stanley shares for each E*Trade share as part of the deal. That translates to $58.74 per share, a premium of just over 30% to the closing price of E*Trade shares on Feb. 19.

- The deal is expected to close in the fourth quarter of 2020. Approval is required from regulators including the Federal Reserve and the Office of the Comptroller of the Currency, Morgan Stanley said.

(Editing by John Foley and Amanda Gomez)

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