Good morning, everyone. It's James Gorman. Excuse my throat here. Thank you for joining us on such short notice. In the room with me, Mike Pizzi, CEO of E*TRADE, and Jon Pruzan , our CFO. We're excited to announce that Morgan Stanley has entered into a definitive agreement to combine with E*TRADE, which of course, is a dynamic tech-driven company with an iconic brand in the self-directed wealth management space. I personally am delighted to welcome Mike to Morgan Stanley. Mike will continue to run the E*TRADE business within the Morgan Stanley franchise and will lead the ongoing integration efforts. Mike will also join our firm's operating and management committees, reporting to me, and we're looking forward to leveraging his insights and also infusing our management and technology talent as we grow our combined business with the E*TRADE employees.
During today's presentation, we'll be referring to slides that have been posted to the investor relations website. This presentation may, of course, include forward-looking statements, and as a reminder, outcomes can differ from expectations. Please see our disclosures in the presentation. In our annual strategic update earlier this year, we discussed Morgan Stanley's evolution over the last decade. We've meaningfully transformed and shifted the business mix towards more durable sources of revenue. Our combination with E*TRADE demonstrates our commitment to expanding our franchise and to evolving with changing industry dynamics. Historically, we outlined that our decision to make acquisitions must be supported by broader strategic logic to build scale in the business, open up a new vertical, or provide capabilities to expand geographically. E*TRADE meets all of these criteria. The addition of E*TRADE's products and iconic brand will serve as a leap forward in our wealth management strategy.
It will position Morgan Stanley to access the full spectrum of wealth across three client acquisition channels, financial advisory, of course, workplace, and self-directed. Through our new enhanced digital channel and combined distribution, we will deliver leading advice and provide best-in-class service and capabilities to our combined clients. A high-level summary of the benefits of this transaction is outlined on slide four in the deck. In addition to the benefits I've already mentioned, the transaction immediately fills in product and service gaps for both E*TRADE and Morgan Stanley clients. It provides meaningful growth opportunities through the combined offerings. It generates significant potential cost and funding synergies. It provides an opportunity for an international digital wealth platform. On slide five, we outlined the evolution of our Morgan Stanley franchise. This transaction represents a continuation of Morgan Stanley's efforts to rebalance the firm. Our transformation to date is apparent.
We've invested heavily in our wealth management franchise while still meaningfully improving the business's margins. Moreover, we successfully acquired and integrated Smith Barney and more recently, Solium. Our management team understands how to integrate these types of transactions, and we know we can successfully bring these platforms together in partnership with our E*TRADE colleagues without disruption to the client experience. Mike will now walk through slide six, which describes E*TRADE's capabilities.
Thank you, James. We're excited to join Morgan Stanley and look forward to all that this combination will provide our clients as we create a complete offering across the wealth spectrum. We will bring a powerful suite of platforms to this combined franchise, including our pioneering and award-winning digital brokerage offering that serves self-directed investors and active traders alike, with the number one-rated derivatives and mobile platforms in the industry. Our established and integrated digital bank, purpose-built to serve the needs of investors and traders on the go. Our leading stock plan business with easy-to-use and scalable digital tools for participants, and our innovative technology forward platforms backed by professional-grade client support. We see our offerings as a strong complement to Morgan Stanley's financial advisors. The bottom line is that our combined forces will enable us to serve a wider spectrum of clients than ever before.
Beyond our products, services, and brand, we hope to bring a unique perspective born from a long history of disruptive innovation and enriched by a deep bench of technological talent. Building off our digital heritage, the joint offering will materially accelerate Morgan Stanley's banking capabilities as E*TRADE systems can provide the rails to build out a full-service digital bank. Beyond the smooth integration with the self-directed brokerage experience, Morgan Stanley will now be able to offer an expanded suite of banking products, including checking and savings accounts and mobile wallet capabilities. Together, we will now be able to offer banking capabilities faster to all clients. Having these banking and brokerage services under one franchise creates greater opportunities for asset consolidation. Further, E*TRADE Bank will provide an additional source of cost-effective deposits for Morgan Stanley, which Jon will discuss in a few moments.
Great. Thank you, Mike, let me quickly flick through the remaining slides, and Jon will take you through the financials on the transaction. Turn to slide seven, please, which underscores the importance of technology in all of our wealth management channels for clients. E*TRADE adds functionality and capabilities across all the channels. First, we focused on the financial advisor, then added cutting-edge technology to Workplace, and now we're obviously materially augmenting our self-directed offering. If you look at slide eight, through this acquisition, we will be positioned to serve all channels of client acquisition. Taken together, we expect to touch nearly 13 million clients, participants, and accounts to help service their various wealth needs. Our current financial advisor channel supports established wealth and is focused on aggregating assets held away. We're also focused on the needs of the next generation.
Our workplace offering builds on the acquisition of Solium and now E*TRADE. E*TRADE's digital and direct offering generally serves a younger, more active demographic. Together, these channels should help us capture clients at a faster rate. On slide nine, we illustrate how this transaction will create a leading offering in workplace wealth, combining E*TRADE's stock plan business with our Shareworks platform. The combination of our businesses will further enable Morgan Stanley to accelerate initiatives aimed at enhancing our workplace offerings, providing online brokerage and digital banking capabilities to participants with the eventual goal of having a similar or even higher 15% capture rate of stock plan proceeds, which is commensurate with E*TRADE's current portfolio. Our franchises are complementary, slide seven displays how this transaction will fill in product and service gaps for both companies.
E*TRADE will provide Morgan Stanley Wealth clients with enhanced technology, digital services, as well as we pick the best of breed technology to service each channel. E*TRADE clients will not experience any disruption, simply added functionality, such as access to Morgan Stanley research and products. Slide 11 compares Morgan Stanley's existing wealth management offering with E*TRADE's. Morgan Stanley tends to serve clients through longstanding, deep relationships. E*TRADE services the next generation and the pipeline of emerging wealth. Having access to this younger demographic and acknowledging their demands for digital solutions is critical to the growth of our business. As these clients' needs become more complex, we'll continue to service them through the current Morgan Stanley offering. Moreover, E*TRADE's technology, product, and innovation supports a faster growth model, adding over 850,000 accounts over the last five years.
What we are most excited about is the power of these platforms in combination, significantly accelerating our growth initiatives. Turning now to slide 12, it highlights the meaningful revenue synergies and opportunities we now have. By combining these two platforms, we have extensive wallet consolidation opportunities across the full wealth spectrum. We believe our existing client base, between our core channel and our stock plan participants, has over $4 trillion of assets held away. E*TRADE increases this opportunity to over $7 trillion. Moreover, with this transaction, we're better positioned and have stronger capabilities to target these assets. Now let me turn to Jon to talk about the financial implications of the transaction, and we'll take your questions jointly at the end. Thank you.
Thank you, James. Please turn to slide 13, which highlights the significant cost savings we estimate that we can realize from this transaction. Wealth management inherently benefits from scale. We expect to see gains from removal of duplicative systems, data centers, and shared services. There are also additional savings from real estate and vendor optimization. These, among other things, should result in approximately $400 million plus in savings. The post-closing integration costs are a combination of integrating the systems of the two organizations, write-offs of some of our and their capitalized investments, change in control payments, and costs related to severance and retention. We estimate these costs will be approximately $800 million. Turning to slide 14, as you can see, we will have an improved deposit profile. E*TRADE represents a low-cost, stable funding source that we will be able to incorporate into our overall bank funding.
In addition, the combination provides funding benefits which are twofold. First, E*TRADE currently sweeps $18 billion of deposits off balance sheet, which will allow Morgan Stanley to replace approximately $18 billion of its bank wholesale funding by bringing those deposits back on balance sheet. Second, given the composition of E*TRADE's liquidity portfolio, there is an optimization exercise we can achieve over time. We would expect to achieve funding synergies of approximately $150 million + per year within two years post-close. In sum, we estimate approximately $550 million + in total run rate synergies that should be achieved within three years, as shown on slide 15. Please turn to slide 16 for a summary of the transaction. The transaction is an all-stock transaction with a fixed exchange ratio. Under the terms of the agreement, E*TRADE stockholders will receive 1.0432 Morgan Stanley shares for each E*TRADE share.
We expect the transaction to close in the fourth quarter of this year, subject to the receipt of E*TRADE shareholder approval and regulatory approvals, most notably the Federal Reserve and the OCC. Slide 17 highlights the pro forma financial impact to Morgan Stanley. Combining the two companies will increase the scale and breadth of Morgan Stanley's wealth management franchise. Pro forma financials for the business include revenues of $21 billion and 8.2 million client relationships and accounts with over $3 trillion of client assets. Moreover, we estimate the deal will bring the wealth management PBT margin to approximately 30% and above 30% with the highlighted synergies. For the firm, we expect the transaction to be accretive when we achieve the estimated cost and funding synergies. We will maintain our existing share repurchase program through June 2020, subject to certain restrictions, and as always, future repurchases will be subject to CCAR.
At closing, given E*TRADE's RWA profile, the transaction should be accretive to CET1 by over 30 basis points. We believe E*TRADE's business model and earnings profile should improve our current stress testing and CCAR results. While the acquisition will be dilutive to tangible book value per share, there will be 100 basis point plus accretion to ROTCE once estimated costs and funding synergies are fully realized. Now back to James.
Ladies and gentlemen, there you have it. The strategic rationale again is captured on slide 18. I'll just say, the more we looked at this, the more attractive it became because of the multiple verticals for both growth and opportunity and the comfort level we have with the senior team at E*TRADE, who we think are world-class. In combination with our group, we're creating the world's best wealth management business across all channels. With that, we'll now open it up to your questions. Thank you.
Thank you. To ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Our first question comes from Brennan Hawken with UBS. Your line is now open.
Good morning. Congrats on the announcement. Certainly exciting news to try to digest here. Couple questions. I know you had recognized that there's some dilution in tangible book, but is there any estimate for what the magnitude of that might be? Based on your sense of accretion, when you think the earn back period for that tangible book dilution might be?
Sure, Brennan, it's Jon. We are taking dilution, as I mentioned. I think before I get into the specific numbers we obviously outlined in the deck why we thought this was such a unique opportunity to really propel our wealth management business to an entirely different level. Also continue the transformation of our earnings profile and the durability of the business to a more balance sheet light, sort of capital light, higher growth trajectory. Talking the dilution, it's about 10%. As I mentioned, we expect a pickup of about 100 basis points of ROTCE, and more importantly, generating EPS accretion. The way we look at it is we're growing EPS, we're improving our earnings profile and the stability of that earnings profile, and we're accelerating our growth that will ultimately lead to the improvement of the long-term franchise value of the company.
That's the way we look at it, and that's why we obviously did it. We recognize that the break-even period as you're referring to is long, but that's not really the way we looked at it. I just outlined that we think this is ultimately franchise enhancing because it accelerates our EPS and adds to accretion.
Sure. Without a doubt, this looks like a really cool deal and very exciting. When we think about the size that this combined stock plan business is going to provide in the marketplace, do you have a sense at all at how the monetization of this corporate stock plan business might end up progressing? It looks like from what you lay out on slide 17, that when you just talk about accretion, you're just talking about the expense side rather than the revenue side. Given the strategic importance and the fit, particularly with the efforts you guys have made on Solium, I'm guessing that that's got to be a pretty compelling component to this strategically over the long run. Is that fair? Is there any way to try to think about how to frame that?
Brennan, very fair. We did not include any revenue synergies in these numbers. Maybe that's conservative, I don't know. It obviously is conservative. We will have revenue synergies. We're going to roll out online banking capability to several million clients in our wealth channel. We're going to be putting advisory product and whatever else is needed across the whole E*TRADE system for those who want it. As you point out, the stock plan business it's a gem. The transaction we did with Solium, the quality that it brought to it, catapulted that business. Frankly, one of the reasons we were most attracted to E*TRADE was the unbelievable job they've done in the stock plan business. They've had an absolute killer business for a long period of time. Mike might want to comment on it. Apart from the obvious scale stuff, just look at the conversion rate.
We struggled for years to get any conversion, and we're changing that with Solium. They've done a great job doing that. The conversion rate at E*TRADE, I think, is 15% of assets. They frankly think of, in our discussions, that could be much higher because if you add in the advisor referral side to it. There are no revenue synergies, and this is just clean, done. To present it in its sort of, if you will, its least flattering light. Our job, and I think our track record is being very focused on putting numbers out there and then delivering them plus some, and we expect to do that here. I'm going to just ask Mike to comment on the stock plan business.
Yeah, Brennan, as you know, the stock plan business has been a differentiator for us, driving a significant amount of customer asset growth as well as customer cash growth at an outsized level. It's an important business for us where we've been able to grow significantly. I think today, by joining forces with a large distribution network of advisors, the capabilities of really adding international capability to that and allowing sort of us to retain the international proceeds as well creates an enormous amount of value.
I'll just say something else while I've got you, even though you didn't ask directly on this, one of the beauties of this transaction is there will be no disruption to the E*TRADE clients. They have obviously a lot of heavy trading related clients that we would just be adding to the platform where appropriate, obviously guided by the E*TRADE management. There will be no disruption to the Morgan Stanley financial advisors or clients at all. We will simply be adding services and referrals into that network that they didn't have before. It's pretty rare that you bring together businesses like this and there's no client disruption. There will be improved technology and there'll be, I'm sure, delays as we roll out different programs to the systems. It won't all happen day one. We're excited about the fact, obviously, we love our financial advisors.
We have nearly 16,000 of them. It's a business that I've been in and around for 30 years and feel passionately about. I think this is a fantastic way to augment both what our financial advisors are doing with their clients and also provide referrals into them. The same reverse goes on. We're very excited about that.
Thank you. Our next question comes from Christian Bolu with Autonomous. Your line is now open.
Hello, guys.
Hey, Christian.
Good morning. James, congrats. A pretty bold move and an exciting one. Can you talk about the genesis of the deal? Did you reach out to E*TRADE, and was that post the Schwab Ameritrade deal? Can you also just talk about the buy versus build dynamic? Obviously, Merrill chose to build their online platform organically. You just paid $13 billion for yours. Help us understand the thought process there as well.
Well, good morning, Christian, by the way. Apologies again for my throat. I'm feeling very well vocal cords with all the excitement, I think. I must have been screaming from the rooftops or something. You might want to put your phone on mute. It's bouncing around a bit. I would say we didn't just buy a platform. There are millions of clients here. There is $600 billion of client assets. There is a $50 billion+ deposit base. There are 40 years of businesses that have been built. There is an iconic brand. The platform is great. The technology we love. It's clearly going to be additive. This is about clients, this is about market position, this is about brand, and this is about technology. We're now a $3.1 trillion managing wealth company. We're a $600 billion almost workplace business.
We've got one of the larger direct businesses in the world. There are multiple reasons to buy this beyond the platform. I just want to put that out there. As to the TikTok, I'm not sure we really want to get into it. I'll just say a couple of things. I first called and spoke to E*TRADE in 2002 when I was at Merrill Lynch, and maybe you weren't even born at that point, Christian. I got really serious in 2007. We're obviously, given what was going on with the HELOC portfolio, there were some issues there that needed resolving, and we could never get comfortable, and a deal didn't happen. This has been, in some ways, an 18-year transaction. As always, I think about strategy pretty simply. You've got to have clear strategic intent.
For a long time, I believed that these channels would converge. Your question is the right one. Why not just build it? If we were spending $13 billion for the technology, I would agree with you. We're not, obviously, as I just said. This takes us in a one-step leapfrog. We're not messing around. We've got access to many millions of clients now, and we get there immediately with a world-class player. To me, that's an obvious strategic call. As to the timing now it's driven off where Morgan Stanley is and what our condition is, and obviously, there was reception on the other end. I think Mike and I immediately hit it off, and we had a great conversation a couple of months ago, and we talked about strategy. We didn't talk about numbers.
We just talked about the strategic fit, and that's really the genesis of it.
Yeah. Just for the avoidance of doubt, I think it's a great deal, by the way. My second question is, how are you thinking about the E*TRADE RIA business? Is that a channel that you would want to grow as well? I hear you saying things like referrals into your FA channels, which I think is how they wanted to grow their RIA business. Maybe just talk about that channel as well.
It's a business, obviously, E*TRADE started a few years ago, and I think it's relatively small. I think it's about $20 billion, I'm looking at Mike, in assets, and he should comment on this. Obviously, that hasn't been the overall driver of the deal. That's something we'll get to when we sort of figure out how we move forward here. We've got to get through closing and so on. There's a lot to learn about companies. The RIA channel is obviously an interesting channel. It was a referral type program. I think that's something that, again, obviously wasn't the primary motivator of the transaction. We respect and the RIA business, we understand it a little bit, and we'll just play that out over time. Mike, I don't know if you want to add.
We see significant growth potential in the RIA business. I think today this just increases the amount of capabilities that we're going to be able to bring and to drive that growth with.
Thank you. Our next question comes from Glenn Schorr with Evercore ISI. Your line is now open.
Hi. Thanks very much. Curious about process first, meaning, A, were there other bidders in the process? B, more importantly, when you spoke to the Fed in this process? Does it imply that M&A is the best way to use excess capital? Does it say anything about future buybacks? Thanks.
Glenn, thanks for calling in. I gather you're on a cruise ship somewhere. Be safe. I'm not sure I want to really get into the process, and I'll let Mike comment or not comment on that. We've done our deal. I don't really care now about history and what might've been and who else might've been in or around the loop. We did our deal. We paid, I think, a full and fair price, and that obviously resulted in the transaction getting done. With the Fed, we have continuous conversations with our regulators, the Fed, the OCC, the FDIC, the SEC, European regulators, U.K., and Japan. We're in constant dialogue with them. Obviously, this has to get all the appropriate regulatory approvals, and we wouldn't be entering into this if we didn't think that from a regulatory perspective, this would be viewed favorably.
Ultimately, the approvals have to go through, so that's not something we would've put to big chance is what I would say on that. The third part of your question I missed was?
On the buyback. Listen, as I mentioned in the script, Glenn, our current intention is to maintain our current buyback. As you know, we've got approved from last year's CCAR on $6 billion. We've been buying back at a $1.5 billion a quarter. With the announcement of this deal, there are going to be certain restrictions, including limitations on volume and blackout dates based on the proxy going effective and so on and so forth, as well as obviously stock price assumptions into models. As I mentioned, it's our intent to keep the buyback in place. We would expect to utilize the full amount in the first quarter. The second quarter, depending on the proxying timing and all the sort of aforementioned assumptions I said, we would expect to utilize a substantial portion of a $1.5 billion in Q2.
Obviously going forward, we have a submission coming up in April on CCAR, and I don't want to get ahead of that process, but we'll see what comes out of that.
Okay, one quickie on the business itself. I'm curious on, A, if you can internalize E*TRADE flow eventually into the great liquidity pool of Morgan Stanley, and B, how you're going to plan on graduating clients, if and when, as they grow in their wealth needs.
I think it's a bit early to talk about what we could do with order flow. That's something we've been discussing, but give us a little time on that. On graduating clients, Mike can speak from his experience, I'll just tell you, there are a heck of a lot of households that we have relationships with that have members of their households who have online accounts. Sometimes it's the same client who deals with us, deals with one of the other online players. We see that. Why not do all your business with Morgan Stanley and E*TRADE in one house? We'll aggregate all your assets for you. There's clearly capability where we have clients and children of clients who are dealing with their provider purely digitally, and that's something we can now provide them. I think Mike has exactly the opposite opportunity, if you will.
Exactly. For those of you that heard me speak before, we've talked a lot about our sort of 10% - 12% wallet share overall. What that meant is always been a great opportunity to gather that and to gain additional assets. We've spent a lot of time building out capabilities and doing things organically to do just that. I think today really leaps us forward tremendously in that ability overall.
Thank you. Our next question comes from Sharon Leung with Wolfe Research. Your line is now open.
Hi, good morning.
Morning.
I was wondering if you can talk a little bit about how this deal improves your positioning in the annual CCAR stress tests, and whether or not there's some sort of CET1 relief in CCAR that's contemplated in your accretion analysis. Thanks.
Jon?
Sure. I'll do, I think, the second one first on the accretion. No. We just assumed sort of consistent buybacks through the period, as I said, we expect the accretion to be in 2023 when we get the full realization of the cost and the funding. As James mentioned, obviously see upside opportunity in that to the degree we capture revenue synergies. On CCAR, we obviously are going to be filing in April, as I mentioned in the script. Given sort of the profile of E*TRADE, which has very little credit and market risk on their balance sheet, should be additive to our PPNR calculations. We would expect, as I said, it's accretive to the CET1 ratio because their balance sheet has very few RWAs. They obviously have leverage assets, but it's mostly high-quality investment portfolio and liquidity.
We would expect it to improve the CET1. As we've also talked about, we're leverage-constrained right now. The leverage ratio doesn't change very much. In a leverage world, we're probably in the same place, but slightly better because of the PPNR dynamics. Ultimately, if SCB comes into play since CET1 and that dynamic, we'll have more to talk about. Until that happens, I think it's a little early to get ahead of it.
The bottom line is it's not going to hurt.
Okay, thanks. Just on the funding opportunity, you noted $150 million from the replacement of, I think you said $18 billion of wholesale funding. Over time, is there opportunity to increase that, just given you have $56 million of deposits coming on board?
Yes. Again, we think there's really a couple opportunities that I mentioned in the script. Remember, those deposits that E*TRADE has is currently earning a yield, so it's not as simple as just assuming we can take all their deposits and deploy them. They're pretty optimized for their current mix. When we bring the two platforms together, given some of the HQLA requirements and the duration dynamic of the liabilities, we think we can do better, and which is why we showed you that $150 million number. The other thing that's really exciting for us is it should accelerate our deposit growth.
As we continue to bring on more loans, which you know is a key strategy in both the wealth and the ISG lending business, we'll be able to put that against sort of the more core deposits that E*TRADE is able to generate as opposed to wholesale funds. Longer term, there's clearly more benefits than the $150 million that we put up on the screen.
Thank you. Our next question comes from Mike Mayo with Wells Fargo. Your line is now open.
Hi. Can you talk about the two separate brand names and where you've seen that as a successful model in the past, whether in financial services or outside?
Sure. Mike, I assume you're addressing that to me, so I'll take it. Good morning. We've had many brands at this institution over the years, and we continue to have them. We have joint ventures in China under the Hua Xin brand. We have alternatives platform under the North Haven brand. We, of course, owned Discover and ran that business under that brand. I'm a big fan of consolidating brands when there's power to the consolidation, and I'm not a big fan of destroying brand equity simply for the purity of consolidation. There are many financial institutions. Our original partner, if you will, the other Morgan, has a brand called Chase, which they pretty powerfully advertise around that brand. Another large institution called Bank of America has a brand called Merrill that they pretty powerfully drive that institution. I could go on for a long time.
With branding, and so better or for worse, I ran marketing at Merrill 20 years ago, and I believe in the power of a uniform parent brand. I think that's important and clarity around that. You should set your business brands based upon what the clients are that they're reaching. This is a brand that has great brand equity. They have a tremendously loyal client base of active traders, of derivative players, and obviously of just regular customers. It's something I think you'd be completely nuts to get rid of. We didn't want to do it, and we're going to work on the exact phraseology of the brand, but it might be something like E*TRADE powered by Morgan Stanley or supported by Morgan Stanley.
We're sort of playing with different ideas there, but this is a great brand and I'm totally comfortable having this as part of the Morgan Stanley family.
As we play around with the numbers, one follow-up. Could you give an estimate for the impact to EPS? You said it's accretive in three years. What's the impact to EPS for the next two years?
Sure, Mike. It's modestly dilutive in 2021, essentially break even in 2022, and then the accretion occurs in 2023. We would expect it again to accelerate, and that's just using the cost and the funding synergies.
The modest, how do you define modest? Only because there's a lot of ways to compute these numbers.
I'll go with modest.
Thank you. Our next question comes from Devin Ryan with JMP Securities. Your line is now open.
Great. Good morning. Congratulations on the transaction. Want to come back on the revenue opportunities and I guess specifically at the strategic update, you guys were pretty specific about the target to convert roughly 1 million of the 2.7 million corporate stock plan customers over the next 5 to 7 years. I appreciate you don't want to overpromise here on the revenue opportunity, but if we apply the same percentage to E*TRADE's base, that would be about 700,000 customers, which would be, I'm sure, incremental revenue is pretty meaningful there. I'm just trying to think about whether there would be any reason that wouldn't be reasonable math or why the customer profile would be different. That's kind of part one. Part two is just around retaining 15% of the proceeds in that business.
I would think that that number could also be significantly better, just given your platform. Just trying to think about a couple of the revenue opportunities here.
Devin, I'll start, and Mike, I'm sure will want to add to it. It's always tricky. Listen, as I said at the beginning of this call, the longer our discussions went, the more excited I became. Yes, there's got to be the appropriate cost synergies. Yes, it can't be too dilutive to Mike Mayo's question and quick turnaround on EPS solution. Yes, you've got to have the right culture, and you've got to sort out what your strategy is around branding. Yes, there's got to be additive platform and services. The more we dug into it, we just saw more opportunities to gain revenue by effectively cross-selling to the different client bases. As you said, higher conversion rates. You start with that 15%, and Mike can talk about whether that's a low number. They feel it's low or high. I'm not going to speak for him on that.
Clearly, we see very significant revenue opportunities over the next 10 years. You look at where our wealth management business has come since we added in the lending products, since we gathered deposits. When we started with this, we had $500 billion assets, and we had $5 billion in revenue, and we had $1 billion in deposits. Now we're sitting on what will be $3.1 trillion in assets, $21 billion in revenue, 30% margin, and $220 billion, I think there is, in deposits. There is just so many ways in which we can add value to our clients. You've pointed some of the obvious ones. We're deliberately not putting numbers on that because we got to close this deal first. We got a lot of hard yards to get done, but we wouldn't be doing it if we didn't think there's real power there.
Mike,
I fully agree. Beyond just stock plan, looking at the main businesses, the amount of wealth that our clients hold away from us, keeping their self-directed money with us and large amounts of advised assets elsewhere, creates enormous potential to consolidate and grow assets over time. Add to that in corporate services, really dominating the market in terms of just the amount of flows that'll be generated from that across proceeds and international as well. I think it gives a great opportunity to generate substantial revenue synergies over time.
Okay, terrific. Thanks. James, you had mentioned kind of convergence of business models in the industry, which I completely agree with. I'm just trying to think bigger picture here around the evolution of the industry, there's clearly a lot going on with consolidation today and people leveraging digital platforms and new customer acquisition channels. As you think about the Morgan Stanley Wealth Management platform moving forward, how does your thought integrating this potentially affect your pricing throughout the platform or customer behavior, potentially Morgan Stanley customers going more self-directed that are high touch today or people that are potentially low touch using more of these capabilities? I'm just trying to think about the bigger picture here in terms of pricing and customer utilization.
Yeah. Self-direct has been around, Devin, as you know, for 30+ years. People have had plenty of opportunity to go self-direct who want to go self-direct. The people who deal with us for financial advice have very complex financial situations, and they want an advisor in the middle of it, and they're paying, on average, if you do the math, I think we're in the 70 basis point range. That frankly represents to me great value. With the range of services that we're offering from setting up family foundations to setting up UGMA accounts to transition wealth, working with estate planners, plus all of their managing all their bond portfolios and everything else that we do. We're not seeing pricing pressure on that. If somebody wants to trade online on their own and follow, God bless them, and they do already.
We have a lot of clients, and some of them are with Mike's organization already. Our opportunity is to get those that have advisory relationships that aren't Morgan Stanley, and get them over here, and similarly, those who have direct relationships that are E*TRADE and get them over here. I don't think there's a pricing sort of blow-through on this. I think there's a growth opportunity blow-through.
Thank you. Our next question comes from Mike Carrier with Bank of America. Your line is now open.
Good morning. Thanks for taking the questions. Just first on the expense side and the synergies. On one hand, I think it makes sense just when I think about your guys' business and then E*TRADE, there are a lot of differences and similarities. It seems like the $400 million number on E*TRADE or the combined expense base is still, I would say on the low side. I'm just trying to understand maybe some of the areas that you are targeting. Obviously, there's certain areas that you're keeping to basically grow the business and expand the business, just a little bit more clarity on that would be helpful.
I'll just start and then open up to both these guys. Listen, this is very early days. If we're being accused of being too conservative, that's fine. We'll take that. We're not trying to gut this business. This is a great business. There are many powerful parts to it. We want to be able to do this transaction without feeling like we have to take out $1 billion of expenses or something. That's just not what we're trying to do here. We're trying to grow. That said, there are obviously a lot of duplicative systems and platforms. Between all the real estate that we have in our organizations, a lot of things that don't relate to people, some of which do, but a lot of things that just relate to the whole infrastructure we have across our organizations.
Jon has really led with Mike's team the work we've done on synergies. Given this came together pretty quickly, and we for obvious reasons, didn't have a lot of people over the wall. There's a lot more detail we'll be doing the next six months. Jon and Mike, if you guys want to.
Yeah. Again, I tried to highlight some of those, and we put some on the screen. Some of the ones that I think we feel very good about around the data center consolidation and some of the.
Sort of the guts and the sort of back office, if you will, organizations over time coming together. Given our scale, we should get benefits from just a cost per trade as type of an operations type number, being able to run more efficiently on our scale platform, the classic shared services dynamics to it. There's really a lot of opportunity that we see in the combination. As James said, we are going to continue to invest in the products and the capabilities and the platform and the brand. Again, it was an attempt to try to look at areas that wouldn't cause disruption to clients. We'd be able to continue to provide innovative products. We came up with the $400 million number, and we feel very comfortable with that.
I don't have much to add to that. I think we've. Yeah.
Okay. No, that's helpful. Just strategically, when you look at the trends in wealth management, whether it's demographics, technology, it seems like having the advisor, the corporate, the direct capabilities, all in one platform, makes a ton of sense. Culturally, it tends to be a bit of a challenge, just in terms of the high net worth versus the direct. When you guys think about keeping the brand, but also from a marketing, from an advertising and trying to retain Morgan Stanley, but also grow or take advantage of the opportunity on the direct side with E*TRADE, how do you balance that or how do you strategically try to migrate that?
This company has come a long way. I was actually looking through some of our history on the weekend, and in 1972, we only were a corporate finance house, and then we boldly decided to launch ourselves into the sales and trading arena. Somewhat reluctantly, I think if I read the stories back then. By 1977, five years later, 50% of our revenues were sales and trading. The big concern was, well, sales and trading people are not the same people as banking people, and would we get over the cultural thing? In 1977, we made our first acquisition in wealth management. Most people don't know that. They think that Dean Witter was the first acquisition. In fact, we bought a place called Shuman, Agnew & Co. in 1977. The CEO then said he thought within five years we would be 25% wealth management.
He was right on the 25%, but it took, let's see, I'm not even sure I can count. It took 30 years to get there, 2010, not 1985. When we bought Smith Barney, people said you couldn't possibly integrate what was Legg Mason, EF Hutton, Shearson, all the pieces that made up Smith Barney and put it together with the old private wealth Morgan Stanley, with the Dean Witter, blah, blah, and somehow we managed to do that. The commonality of our businesses are we're markets-placed businesses. We're all in the markets. When Mike's sitting on the operating committee, and we're talking about what's going on in the prime brokerage business, he understands that business.
We all have a commonality of language, and I don't think, yes, we do different jobs, and yes, we have different backgrounds in some of our businesses, but honestly, there are so many different people across our 60,000 employees now, that's not an issue. One of the commonality is around your values, the culture of the organization, treating people with respect, giving back to our communities, the things that we share in common. That's where you've got to find commonality, and the core of it on the business side is we're a markets-based company. Mike.
I think that was very well said. I really don't have a whole lot to add. I think those are the elements of culture. I think we share a lot of elements of culture, maybe a little different in dress code. Outside of a few obvious ones, we share a lot of the core elements that matter.
Mike did ask me if I had a pair of jeans, and the answer is yes, I do. I will adapt.
Thank you. Our next question comes from Matt O'Connor with Deutsche Bank. Your line is now open.
Good morning. I was wondering if you could talk about the underlying earnings power that's assumed for E*TRADE in 2023. I think there might be a $6 target out there that at one point they had. That obviously implies a big increase from here, and frankly, I'm not as close to the E*TRADE side of things, but I'm trying to better understand what's being assumed on the earnings power and how confident you are in getting there.
Yeah, again, it's Jon. Just 2023, as I said, it's accretive. The way we built up the model really was from our side. We used I/B/E/S for 2020 and 2021 then used reasonable growth rates thereafter. More conservative than Mike's public target that's out there. With those assumptions, including the $400 million and the $150 million, as I said, we get to accretion in 2023.
Okay. Do you care to put any specific numbers out there in terms of the earnings assumed?
In 2023, no. I think, again, it was more conservative than Mike's plan, and we feel very comfortable with the accretion path that we laid out.
Thank you. Our next question comes from Jeff Harte with Piper Sandler. Your line is now open.
Hey, Jeff.
If your line is muted, please unmute. Our next question comes from Michael Brown with KBW. Your line is now open.
Hi. Good morning. This is Mike Brown on for Brian Kleinhanzl. I just wanted to talk about the structure of the transaction. Clearly at the current valuation levels, your current general stock deal was strong. Given the EPS accretion could have been higher if you used a mix of cash and stock, with the cash piece being funded by some debt, why not go down that route? Was it just due to the impact of the capital ratios, or was it in conversations with the Fed? Any color there would be helpful. Thanks.
There was no regulatory input on the structure of the transaction. This was entirely our decision and what was comfortable for E*TRADE. We feel good about the stock. We want to use stock, we obviously, as Jon said, we have our buyback program still in place. We can use that over time by continuing to buy stock to support the stock. This was a combination. We feel it's a powerful move for the equity holders, and now E*TRADE shareholders are going to be equity holders.
Okay, great. On the integration-related costs, what is kind of the trajectory there? Should we expect most of that to flow through in the kind of fourth quarter and the first half of 2021, just to make sure we kind of model that piece correctly?
Yeah. Mike, I think you're going to have to wait to do your modeling a little bit. We got to get through the closure. We'll learn a lot more about each other's companies in the next six months, and we'll have a much clearer sense of the actual trajectory of both the post-close. There's some restructuring costs that are immediate post-closing, but a bunch of these things will take months, so we'll come back to you on that.
Yeah. Just to clarify, that 800 is a post-closing number, and I would suspect it would be further out than your expectation in terms of immediate, because, again, it was described as post-closing.
Thank you. Our next question comes from Jeff Harte with Piper Sandler. Your line is now open.
Hey, can you guys hear me this time?
Yes, we can, Jeff.
Oh, good. Thank you. Operator error here. Looking at your corporate services business, is there much for client overlap? I guess along those lines, can you give us some indication what the combined entity would be looking at market share-wise in that business?
It's a little early to talk about share, and I don't believe there is much client overlap. Obviously, we haven't gone client by client. We haven't had an opportunity to do that. I think, and if you look at just the, typically the corporate plans are not shared. They have a much smaller number of plans, more participants per plan, and more assets balances per plan. We probably play more in the public domain. Now, there's a lot of pre-IPO plans through the mix. No, I don't think there's much overlap at all.
Yeah. From a participant perspective, it's obviously, I guess if someone had two employers, but I wouldn't expect much overlap.
Okay. As we look at the deposit increase and the funding cost saves, should we be thinking about that more as a function of mix versus deployments? I guess I may be asking, are there current Morgan Stanley businesses that could be funded by deposits that currently aren't?
No. Again, I think that, as I mentioned, the $150 million, first of all, we should be able to realize that more quickly than the cost savings, so a two-year process as opposed to a three-year process. You could assume that everything that can be in the bank currently, from an overall perspective, is in the bank. We would expect the banks to grow as we continue to increase our lending balances. From that perspective, we're pretty optimized from a bank and a broker-dealer at this point.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.