The yen is traditionally seen as a low-yielding currency because the Bank of Japan historically has one of the lowest interest rates among developed countries. Its short-term policy interest rate is currently still negative. Policymakers have generally been seen as trying to maintain policies that would help weaken the yen. Skip Navigation. Markets Pre-Markets U. Key Points. The U. The dollar is expected to be the best safe-haven currency bet this year because lower interest rates in the U.
The world's reserve currency benefited from a flight-to-safety earlier this year, which drove the greenback to a three-and-a-half year high in March as the coronavirus pandemic spread to the United States. In this article. Yen, euro and U. An interesting aspect of the brokerage industry is that even though its digital nature would allow global service models, most brokers operate on a mono-country model and only some serve clients from all over the world. In the US, most of the conversation is around Robinhood , its strong customer growth and its new business model.
In Europe , and especially in China, the discussion is around another phenomenon, the so-called "super-apps".
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Chinese investors trade on Wechat and Alipay, but these apps are far more than just trading apps. They are much more a tool through which you can live your entire digital life. In Europe, Revolut , a daily banking app with very strong growth, has also expanded its services to include stock trading. If we compare E-Trade with its two closest competitors, TD Ameritrade and Charles Schwab , we can see that the services they provide are very similar.
All these major players offer commission-free stock and ETF trades. They also generally have different trading platforms for traders and investors. Lastly, their product range covers only the US markets and their added services, such as research tools and customer support, are high-quality.
If we compare E-Trade with newcomer, mobile-first brokers such as Robinhood , we can see more differences: newcomers' main focus is on investors , account opening is easy and quick, but the quality of support services is low. Customer service is poor, and research and education services are basic. As we discussed earlier, Morgan Stanley acquired E-Trade because it is a capital-light business line helping MS to serve affluents better and to capture more digital know-how. Beyond these reasons, analysts are pointing at Robinhood and the effect of its commission-free trading model on the market.
Another theme is that the E-Trade acquisition is a big bet on the part of MS. We think both of these explanations are misleading. Commission-free trading is not the main reason behind the E-Trade deal and it is not a big bet , but an experimentation by MS. This was an important factor in the current deal, but not the main reason why Morgan Stanley swooped in to buy E-Trade.
For sure, commissions have been a source of revenue for brokers, and any loss in revenues is a hit. But if you look at their revenue breakdowns, you see that commissions are just one factor, and not necessarily the most defining one within the top-line of brokers. Brokers usually do not report the details of income from selling order flow and additional services. But, you do clearly see net interest income in their income statements.
Looking at E-Trade's income statement it is clear that commissions are not its biggest source of revenue. In November E-Trade lowered its commissions to 0.
So did TD Ameritrade and other a handful of other brokers. The question is, does this put a squeeze on online brokers? Based on a back-of-the-envelope calculation, it is clear that E-Trade will remain profitable in even if all commission income disappears. There is more to it. Net interest income means that brokers can earn interest on their clients' uninvested money. Morgan Stanley can opt to lend these funds to clients, which is a higher-margin business.
Brokerchooser's top-down calculation shows that E-Trade can remain profitable on the same level even without commissions, if it manages to increase NII margins. Source: E-Trade annual report and BrokerChooser calculation. The E-Trade acquisition is often interpreted by analysts in the media as a big bet on the part of Morgan Stanley. It is quite often compared to the Smith Barney deal. In that sense the two deals are similar.
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But the thing is, a valuation was done in a completely different business climate than the bullish valuation environment of With the acquisition of Smith Barney, Morgan Stanley had the largest financial advisory business. Today, E-Trade is not the top player, and Morgan Stanley does not have a self-directed brokerage business E-Trade can be merged into.
Charles Schwab did not just buy a larger online broker than Morgan Stanley, but there is also another aspect to it, the economies of scale. When Morgan Stanley acquired Citi's Smith Barney, a wealth management business, Morgan Stanley already had its own wealth management business. Morgan Stanley does not have an online brokerage business, hence merging the two companies cannot build on economies of scale.
Instead, Morgan Stanley hopes to unleash synergies by cross-selling across client segments. This is of course harder. The E-Trade acquisition is also interesting because E-Trade has not been growing organically over the last couple of years. If Morgan Stanley wanted a customer growth champion, Robinhood would have been the target. Morgan Stanley did not buy the fastest-growing broker.
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Morgan Stanley did not buy the largest online broker and Morgan Stanley did not buy an online broker to build on the economies of scale. This is not a big bet, not a doubling down which Morgan Stanley already did before, but much more an experimentation. But experimentation for what? We think it might be international expansion. They provide details on all points, except one: let's see, which one might that be? If you are 1 in financial advisory in the US, how do you grow further? Could it be that Morgan Stanley regards E-Trade as a digital platform it can use to expand its business on an international level?
Morgan Stanley acquires E-Trade — Why this makes sense
In fact, even Morgan Stanley Chief Executive James Gorman said that he sees an opportunity in taking the newly acquired brokerage firm international again. Can this be done? The company was founded in California, its current headquarters are in New York and it has 30 branches all over the US. Accounts for British residents used to be available until when the firm decided to focus on its core US operations.
This move was made after its main competitors, TD Ameritrade and Charles Schwab did the same thing a few months before. That was of course The current champion of international expansion is Interactive Brokers. It is also a US-based online broker but has a much larger international presence than E-Trade.
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In fact, IB could be regarded as the most international business. It accommodates international clients and also covers multiple international markets. E-Trade allows account opening for US residents and for some international clients through a complicated paper-based process, while IB caters to customers on every continent. This is very limited coverage compared to Interactive Brokers, which covers 78 markets. Can E-Trade, a very much US-focused digital platform be used to expand internationally?
We think the answer is yes, this is the Interactive Brokers way. Can this digital platform be used to build a more international advisory service too? Only time will tell. Everything you find on BrokerChooser is based on reliable data and unbiased information.
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Read more about our methodology. Toggle navigation. Feb Intro 3 clear reasons Brokerage is a diverse field E-Trade's service 2 misconcepts International expansion. Invest with incredibly low fees on 50 markets. Tell us what you think, write to us at [email protected] We think there are three very clear reasons why Morgan Stanley acquired E-Trade. Back to Top. Our readers say.
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I just wanted to give you a big thanks! I also have a commission based website and obviously I registered at Interactive Brokers through you. Especially the easy to understand fees table was great! Dion Rozema. There are three clear reasons for the E-Trade acquisition: gaining a capital-light business line targeting the mass affluent, and capturing digitalization know-how Let's go through these one by one.