Morgan Stanley's $7B Eaton Vance deal; Revolut's 4.5% bonus savings rate

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Another day, another deal

Just days after completing its $11 billion acquisition of E*Trade, Morgan Stanley said it is buying Eaton Vance for $7 billion, “continuing the Wall Street firm’s shift toward safer businesses like money management, ” the Wall Street Journal said. The move “is another leg in a decadelong turnaround project for Chief Executive James Gorman, who has closed risky trading operations and doubled down on wealth and asset management.”

It also “mirrors a broader shift in power and profits on Wall Street. Asset management, which produces steady fees and requires little capital to run, has become a priority for banks including Goldman Sachs and JPMorgan Chase. By acquiring Eaton Vance, it will join the club of $1 trillion money managers and bulk up in specific products where it is weaker, such as municipal bonds and sustainable investing.”

The deal “will create one of the world’s largest asset managers,” the Financial Times said. “The move will leave it better positioned to compete against the growing might of passive fund houses BlackRock and Vanguard, as well as against the asset management arms of rival banks JPMorgan and Goldman Sachs.”

“Eaton Vance is a perfect fit for Morgan Stanley,” Gorman said, adding that it provides “compelling long-term financial benefits.”

The deal “isn’t a steal,” the Journal commented. But “it still might prove to be a very good business decision.”

“The bank effectively has something like $10 billion in capital resources surplus to requirements. Using cash for this deal is a potentially prudent way to utilize some of that capital cushion. Consider other options: Buybacks might be restricted or politically challenging for an uncertain period of time. Lending at rock-bottom rates isn’t terribly attractive and demand is low anyway. By contrast, asset management doesn’t add to the balance sheet and can reduce earnings volatility. Any future earnings accretion would come on top of that.”

Also on Thursday, Morgan Stanley was slapped with a $60 million fine by regulators for risk management problems tied to a 2016 data breach, American Banker’s Brendan Pederson reports.

Wall Street Journal

Different views

“Donald Trump and Joe Biden have divergent views on the federal government’s role in the $11 trillion mortgage market, with potential consequences for the price of home loans for millions of Americans.” The Journal looks at both candidates’ positions and what they might mean to the housing and mortgage markets.

Elsewhere

Bonus rate

Revolut, the London-based virtual bank that launched in the U.S. in March, said it “will offer U.S. customers a 4.5% bonus rate on savings deposits,” Reuters reported. The bonus is tied to how much customers spend on their debit cards.

“The launch of the new rate will make Revolut the latest app-based checking and savings account provider to try to achieve that prominence through higher than average returns and other perks.” The fintech “is now approaching 500,000 U.S. customers and 13 million globally.”

Paltry payouts

Shareholders of HSBC “face a future of paltry payouts when regulators restore its powers to pay dividends as the bank's bosses press on with a costly revamp against a backdrop of a global recession and the threat of negative interest rates,” Reuters reports.

“One of the banking sector’s most reliable dividends could be slashed by as much as 50%, analysts and investors say, with HSBC’s management expected to use the economic uncertainty to downgrade shareholder expectations. Chief Executive Noel Quinn also faces pressure to keep lending to struggling households and businesses while keeping capital in reserve to pay for the bank’s overhaul and cover any bad debts if nonperforming loans spike.”

Art for sale

Deutsche Bank “plans to auction some 200 pieces from its extensive art collection. Germany’s biggest bank, which says it owns 55,000 works of art despite a recent streamlining, held its previous sales privately rather than at public auctions. It expects to raise more than 10 million euros ($11.8 million) from the planned sale, which will include works from artists including Paul Klee, Max Beckmann, and Hans Hartung.”