The deal will see Montreal-based BMO Financial Group sell the US online brokerage to financial services company E*Trade.
It looks like a smart pickup by E*Trade. The company will get Harrisdirect’s customer accounts with the transaction. E*Trade said in a statement that they will add some 430,000 “high-value” accounts averaging $70,000 in balances with the acquisition. The Wall Street Journal notes that figure is about double the average E*Trade account balance.
E*Trade sees the purchase generating earnings per share of 17 cents once operations have been integrated and run for a full year. On the bottom line, E*Trade adds $32 billion in assets to the firm; $5 billion will be in cash, and a further $1 billion in margin debt balances. Total cumulative assets should number around $130 billion.
The basic strategy among firms like E*Trade parallels that of typical commercial banks and credit unions. By offering more services they can cross-sell to brokerage customers, like banking and lending, firms create more ways to retain their customers. Inertia plays a role, in that the more accounts someone has with an institution, the less likely they are to leave.
Those expanded services have allowed the major players in online brokerage to lower stock trade fees. Loans and other services offer more stability, and more reliable revenue streams, than a fluctuating volume of trades can offer. E*Trade, which once made 100 percent of its revenue from trading, has seen that percentage drop below 20, according to WSJ.
David Utter is a staff writer for Murdok covering technology and business. Email him here.
