E*Trade Group Inc has made its long-predicted move into internet banking with the $1.8bn acquisition of Telebanc Financial Corp, which provides banking services over the internet, phones and automatic teller machines. The news comes as the largest brokerage in the US, Merrill Lynch & Co announces that it will offer all its customers the ability to trade stocks online. Until now the service has only been offered to a handful of its customers. Merrill will charge users $30 per trade.
Under the terms of the deal, E*Trade will exchange 2.1 of its shares for each Telebanc share. Following the acquisition, which is expected to close in the fall, Telebanc shareholders will hold about 13% of the stock of the enlarged company. The $1.8bn valuation is based on Friday’s closing prices and will be accretive to E*Trade’s top and bottom lines.
Through the acquisition, E*Trade will be able to offer its customers cash management services and other banking services insured by the Federal Deposit Insurance Corp (FDIC). Telebanc will be run as a separately-regulated subsidiary of E*Trade and the Telebanc brand will gradually disappear, replaced by E*Trade.
Telebanc’s vice chairman, president and chief executive Mitch Kaplan will remain with E*Trade in a senior, but unspecified role. E*Trade chairman and chief executive Christos Cotsakos says his position is yet to be determined, adding that titles are insignificant at both companies, without a hint of irony.
Cotsakos claims the Merrill service is still only for the elite. E*Trade will runs ads today in all major US newspapers today to announce the acquisition, using the tagline Sorry bankers, but the brokers should have warned you. E*Trade will also upgrade its web site in two weeks.
