A sign is displayed on the Morgan Stanley building in New York, the US. Picture: REUTERS/LUCAS JACKSON
A sign is displayed on the Morgan Stanley building in New York, the US. Picture: REUTERS/LUCAS JACKSON

New York — Morgan Stanley agreed to purchase Eaton Vance for about $7bn in CEO James Gorman’s second major acquisition in 2020, both of which tilt the investment bank further towards the steadier business of money management.

Eaton Vance shareholders will receive a total cash-and-stock consideration of about $56.50 a share, Morgan Stanley said in a statement on Thursday. That represents a 38% premium over Eaton Vance’s closing price on Wednesday.

Gorman has become the most prolific dealmaker on Wall Street in the past three years, using acquisitions to transform his bank. Just days after completing the purchase of E*Trade Financial Corporation, Gorman is making an acquisition that will bulk up Morgan Stanley’s asset-management arm, which has lagged behind that of rival Goldman Sachs.

“Asset management has been an unsung hero inside Camp Morgan Stanley,” Gorman said in an interview. “We felt it was in a position to do something, and this was a natural evolution.”

The E*Trade takeover was the industry’s biggest since the financial crisis saddled banks with regulations that hobbled some of their signature businesses. For much of the past decade, Gorman spent his time at the helm turning the bank into a major wealth-management player and shifting it away from its reliance on its trading and investment-banking operations. The latest acquisitions come at a time when those core Wall Street operations are minting money.

“It’s a happy coincidence. It gives everyone a skip in their step,” Gorman said. Do not expect another big takeover by Morgan Stanley any time soon, he said. “We’ve just done two significant transactions. We need to absorb these businesses for the next several years. We are not about to make another announcement in four weeks or four months.”

Eaton Vance shares surged 46% to $59.81 in New York, higher than the deal price. Morgan Stanley fell 1.2% to $48.12.

In trying to absorb an asset manager such as Eaton Vance, the Wall Street firm is aiming to bulk up in a business whose lure of steady fees and low capital charges has attracted many big banks.

Eaton Vance shareholders will receive about $28.25 a share in cash and 0.5833 shares of Morgan Stanley. After the acquisition, Morgan Stanley Investment Management will have about $1.2-trillion under management and more than $5 billion in revenue. The purchase is expected to be completed in the second quarter of next year.

While the shift to cheaper passive funds has weighed on many asset managers, Eaton Vance has leant on fixed-income and customised portfolio offerings to generate consistent inflows. Its Parametric business offers direct indexing, a blend of active and passive investing that has got increased investor attention.

Under pressure

The asset-management company has been under pressure to consolidate further. Nelson Peltz’s Trian Fund Management built up stakes in Invesco and Janus Henderson, according to filings, as the activist firm rallies for mergers in the industry.

Gorman said two years ago that he wanted his asset management unit to hit $1-trillion in client assets in coming years. The firm had long held that it could achieve significant growth without a big deal, but struggled to deliver. In 2014, Greg Fleming, who oversaw the unit at the time, said reaching $500bn by the end of 2016 was achievable. The bank finally hit that mark in 2019.

Morgan Stanley had more than $600bn in assets under management in 2008. After the financial crisis, the bank sold its retail asset-management business, which included Van Kampen Investments, acquired in 1996. “In hindsight, I’m not sure that was a great idea,” Gorman said in 2018.


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