Morgan Stanley is betting that regulators in Washington will approve what is perhaps the most consequential acquisition by a so-called systemically important American bank — the too-big-to-fail variety of financial institution — since 2008.
Under the Obama administration, officials at the Federal Reserve fretted about the nation’s biggest banks growing through mergers. Daniel Tarullo, a former Fed governor, said in a 2012 speech that the central bank should have a “strong, but not irrebuttable, presumption of denial” for takeovers by America’s banking titans.
But the Fed has become more industry friendly during the Trump administration, particularly with the addition of officials like Vice Chairman Randal K. Quarles, a former bank lawyer who is helping reassess the rules put in place after the financial crisis. The central bank recently approved the combination of BB&T and SunTrust, paving the way for the creation of the sixth-largest U.S. commercial bank.
The acquisition could look attractive to regulators from a financial stability perspective: The deal would infuse the Wall Street bank with stable deposits and reliable revenue streams. But it will also make Morgan Stanley more of a behemoth.
Morgan Stanley doubtless hopes an E-Trade deal goes more smoothly than a past effort to pull in retail clients. Its merger with Dean Witter Reynolds two decades ago foundered amid a clash between Morgan Stanley’s Wall Street aristocrats and Dean Witter’s more down-market brokers. Since then, however, the bank has been steadily shifting toward asset management — one of a number of approaches major banks have been trying to court Main Street.
Morgan Stanley’s traditional rival, Goldman Sachs, created a retail-focused lending arm, Marcus, in 2016 and teamed up with Apple last year to offer a credit card. Last month, Goldman said it intended to expand its retail deposit base to $125 billion, and its consumer loan and card balance to $20 billion, over the next five years.
Investors seem to be more taken with Morgan Stanley’s continuing shift than with Goldman’s, at least based on the Wall Street scoreboard of stock prices. Shares in Morgan Stanley have climbed nearly 33 percent over the past 12 months, while those in Goldman have risen about 19 percent.