Comments (24)

Feb 20, 2020

sadly more Industry consolidation

Feb 20, 2020

Everybody chasing those recurring revenue streams.. even the white shoes

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Feb 21, 2020

"the only recurring streams I chase are Russian hookers urinating on me"
-- Donald J Trump

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Feb 20, 2020

very interesting deal. a trend in PWM has been to broaden the base of clients. MS, ML, and UBS had been losing the fringe client to schwab, etrade, TDA, fidelity, vanguard, because of higher costs and whatnot, but mostly because of a lack of diversity on their platforms. as a client of one of the big firms, you had no access to self directed trading (or limited), archaic technology, and so on. so basically you had full service advisory (what I do) or self directed advisory (what eTrade does) but they never resided at the same companies.

then Merrill came out with merrill edge and everyone held their collective breath. it's turned into a good lead source for full-service advisory. imagine you're retired at 60 with $10mm, you love your merrill guy, but your son & daughter who are just starting out (maybe in late 20s/early 30s) don't need your merrill guy and are likely turned off by his old school way of doing things. they may need advice, but also want some DIY tools and technology. merrill edge set the standard for this, giving these folks a simple, low cost way to get advice without paying full freight (for admittedly less service, but if they don't need it, who cares).

in addition to that, merrill/morgan/ubs have been losing corporate business to low cost providers for years. say you work at a company and part of your compensation is in stock, companies like the big 3 would administer the plan, charge a token amount for that, but then capture the wealth from executives selling out of their stock. the only problem is the lower level employees with stock don't want to do business with the big 3 as they stood, and companies like eTrade/fidelity/schwab realized this. they lowered their costs (after all, they're not paying their brokers well) and started taking business from the big 3 and have leveled the playing field a bit. this move gives MS a very competitive position in this space and from a corporate side, puts them ahead of merrill and UBS (arguable who's #1 in private wealth, but we'll leave that alone).

finally, all firms want to say "yes." the old days of only doing business with people worth a certain amount (at the firm level) are gone. in the old days before online brokers, you had to stay at a big firm (maybe buy stock after college graduation, do that first IRA rollover, and go from there) but now people are starting at discount brokers and getting sticky to them, rarely leaving. this is another way for MS to stick its claws into all types of clients, from the new employee who has $5,000 worth of stock all the way up to billionaires, it can be done at one firm. merrill was already there, but this move arguably puts morgan ahead.

etrade customers won't have higher fees, if they're smart, they'll keep etrade products the same pricing (you can make it up by giving clients shitty spreads on market orders, schwab does this all the time), they'll just increase the reach of MS's advisors, stuff like that. won't affect IB at all, won't affect MSIM at all, this is purely a play within wealth management/PWM.

Feb 20, 2020

Agree with everything you are saying, and the name of the game in PWM is AUM growth. Given that so much of the market is already saturated, it seems to me that the large players are almost acting like utilities in how they are relying on M&A for growth.

I'm wondering who advised as well.

Feb 21, 2020

Great analysis. Any sense of whether they paid a good price? Assume price-per-customer is the way to look at it, but if that's not correct then would love to know other approaches.

Feb 21, 2020

At about 5.2m customers they paid $2,500 / customer.

Using price/customer would be fine super high level. If I was diving deeper I might take a look at it from the following perspective:

In my experience D&I businesses have a few main revenue sources:
- Income related to D&I balances (Interest Income revenue rates on varying balances such as loans / investment securities / cash / etc.) These will all have varying yield rates which can probably be estimated / looked up from quarterly filings.
- Non Interest income (revenue from commissions / fees)
- I'd overlay what fees / rates / services I think MS may decide to change and the associated volume impact that an increase / decrease in fees may bring about.
- Incremental to that would likely be some assumption of how MS thinks that having these relationships with ~5m customers allows them to capture incremental Economics by bringing them into the "MS ecosystem." This could be through various loan origination activities / higher fees on a blend of more custom investment portfolios (as brofessor mentioned above about self directed vs. full service vs. blended advisory) etc.

High level math in my head would assume they paid a fair price, especially if they were able to keep IBD fees low using In-house counsel. Would definitely still love to hear your perspective on this though @thebrofessor"

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Feb 20, 2020

im with thebrofessor on this one. interesting deal and makes a lot of sense for MS. It gives MS access to a large volume of "smaller" clients that may not be full-service clients at the moment, but can graduate up in the future. they also picked up 360 Billion worth of AUM. I am sure a small portion of that can convert to some sort of "in house" product. I don't know anything about MSs platform, but my guess is that e-trades tech stack is miles ahead - so there's another plus.

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Feb 20, 2020

anybody know the financial advisors on the deal? Only seeing legal on the press release

Array

Feb 20, 2020

I'd imagine MS M&A

Feb 20, 2020

My guess would be a select read-in group of senior bankers from the MS FIG/M&A groups, and then they bring in another bank to do the day to day and grunt work.

The reason being is that you don't want any internal leaks to the PWM team who also sit in 1585.

  • Analyst 1 in IB - Ind
Feb 20, 2020

It could be their FSE group. They were the ones working on the Smith Barney acquisition from Citi, unless things have changed dramatically since then.

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  • Analyst 1 in IB-M&A
Feb 20, 2020

It's FSE

Feb 21, 2020

Probably not MS M&A but I'd imagine they have some sort of In - house M&A / Strategy Group.

Feb 20, 2020

So how many layoffs coming?

  • Analyst 3+ in CorpFin
Feb 20, 2020

I'm pretty pissed, I had a final round with e-trade coming up next week. Might pull my app, don't want to join and then get reorged in 6 months

Feb 21, 2020

It's not a crazy concern to have, but is it realistic that they'd indiscriminately hire people with a merger coming down the pike? I'm thinking its more of a small concern to keep an eye out for and kick the tires a bit before signing an offer letter.

Feb 21, 2020

Huh? The MS discussions were secret. The company keeps hiring as normal, except now it's no longer normal. MS says they hope to realize $400M of savings through various synergies, that means cutting shared services. They will cut all Etrade stuff (and people) that they already have and will keep all of the Etrade stuff that they paid the premium for.

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Feb 21, 2020

"reorged". How about "laid off"?

Feb 22, 2020

The dude isn't even hired yet. He has an app in. They're not going to hire him now just to lay him off. Ppl be silly

Feb 22, 2020
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Feb 21, 2020