Morgan Stanley CFO: E-Trade deal will aid 2021 stress test

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Morgan Stanley expects to have an easier time passing its federally mandated stress tests next year once its $13 billion deal to acquire the discount brokerage E-Trade Financial closes, Chief Financial Officer Jonathan Pruzan said Thursday.

The $895.4 billion-asset bank will get a capital benefit from E-Trade’s revenue streams without taking on a lot of risk to the balance sheet, Pruzan said at the Credit Suisse Financial Services Forum in New York. The deal is expected to close in late 2020.

“Capital was one benefit of the transaction. E-Trade helps our position in CCAR and stress testing,” Pruzan said, referring to the Comprehensive Capital Analysis and Review.

Morgan Stanley reported a Common Equity Tier 1 capital ratio, a key measurement of a bank’s financial strength, of 16.4% at the end of the fourth quarter. Pruzan said E-Trade could add about 30 basis points to that ratio once the deal closes.

The deal is also expected to help fuel loan growth. Morgan Stanley has been increasing lending from within its wealth management business. Pruzan said “one of the many nice things about E-Trade” is the source of low-cost cash and deposits it will provide Morgan Stanley.

The bank may still be looking for some smaller acquisitions within investment management, Pruzan said, that could help it expand geographically or add new products.

“I don’t think we’re done,” Pruzan said.

However, further deals in the wealth management business specifically are “probably off the table for a while” as Morgan Stanley digests E-Trade, Pruzan said.

The deal for E-Trade was announced on Feb. 20, just before the spread of the new coronavirus intensified in some countries around the world and rattled financial markets. Banks have been quietly preparing in case the outbreak worsens.

Pruzan said there has been some slowdown in the bank’s investment banking business, especially in Asia, which has put some plans to take companies public on a “day-to-day” status. But the bank is also looking at some opportunities like a couple of deals for companies that specialize in webcasts, as alternatives to face-to-face events such as roadshows and conferences.

Morgan Stanley is asking attendees to their own technology and media conference in San Francisco next week if they have recently traveled to areas where cases of the virus have been reported, a spokesperson said.

“We’ll have to see if this is a short-term phenomenon or a longer one,” Pruzan said.

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