RealTime IT News

E*Trade Adds Investors With $1.6B Buy

UPDATED: Making its second major acquisition in as many months, E*Trade today said it will pay $1.6 billion in cash for J.P. Morgan's BrownCo online trading unit.

The deal will give E*Trade 200,000 new well-heeled customers who carry an average balance of more than $145,000 -- the second highest in the industry, E*Trade said.

In a teleconference with financial analysts, E*Trade CEO Mitchell H. Caplan said the company will continue pursuing acquisitions that add to its earnings and bring down costs through increased scale.

E*Trade expects to gain $29 billion in assets, $3.4 billion in customer cash and approximately 28,000 daily average revenue trades from the acquisition. It figures that restructuring costs will be approximately $60 million in 2006.

New York-based E*Trade hopes it can sell other financial services to these news customers, including money market accounts, ATM services and mortgage and home equity loans.

E*Trade's buy follows its $700 million purchase of Harrisdirect from BMO Financial Group in August.

Caplan said he expects the Harrisdirect deal to close in early October -- nearly a full quarter earlier than originally thought.

Combined, Harrisdirect and BrownCo will bring E*Trade an additional 630,000 accounts, Caplan said.

Today's agreement also comes three months after its rival Ameritrade closed a deal for TD Waterhouse from Toronto-Dominion.

Ameritrade, which recently topped a customer satisfaction survey, has also been aggressively acquiring online trading and financial services companies. In 2002, it paid $1.29 billion for Datek.

The Internet boom gave birth to a slew of online brokerage companies. However, mergers and acquisitions among online stock-trading firms have picked up, as falling commissions have made trading volume a priority.