E-Trade to buy online brokerage BrownCo for $1.6b
NEW YORK -- E-Trade Financial Corp. yesterday said it will buy BrownCo from JPMorgan Chase & Co. for $1.6 billion, a move that intensifies its rivalry with Ameritrade Holding Corp. for dominance in the online brokerage market.
The acquisition comes amid rapid industry consolidation as competitors slash fees in an effort to win customers and boost trading volumes, which have declined heavily since the dot-com bubble burst four years ago. This past summer, both E-Trade and Ameritrade disclosed plans to take over smaller firms.
Jarrett Lilien, E-Trade's president and chief operating officer, said adding BrownCo's 200,000 clients -- whose average account balance of more than $145,000 is the second-highest in the sector -- will improve the overall quality of its customer accounts.
While BrownCo has a relatively small account base, E-Trade gains a ''much-needed" customer segment of active traders with high cash balances, said Lauren Bender, senior analyst at financial consulting group Celent LLC. BrownCo's clients trade an average of 36 times a year, about six times as frequently as the current E-Trade customer.
Coupled with its August purchase of Harrisdirect from BMO Financial Group for $700 million, E-Trade stands to see expanding profit from growing trading volume as its system becomes more efficient, Bender said.
''We estimate that the additional trading volume from Harrisdirect and BrownCo will reduce our break-even point to 15,000 trades per day from our current standalone level of approximately 45,000 trades per day," Mitchell Caplan, E-Trade's chief executive, told analysts on a conference call.
The company said it will average almost 160,000 trades per day after the deal closes. Earlier this month, E-Trade reported August volume of 121,086 trades per day, down 3.7 percent from July, while Ameritrade's average daily volume grew slightly more than 1 percent to 146,000.
Job cuts are expected at both E-Trade and BrownCo, but while Lilien did not specify how many, he said about a quarter of the $91 million in projected cost savings will come from salaries.
Restructuring activities should cost about $60 million in 2006, E-Trade said.
