Online brokerage firm ETrade Group and Telebanc Financial, a US Internet-based bank, yesterday announced their planned merger in a stock-swap deal valued at $US1.8 billion.
Telebanc shareholders will receive 2.1 shares of ETrade common stock for each share of Telebanc's common stock, ETrade chairman and chief executive officer, Christos Cotsakos, said yesterday.
According to Cotsakos and Mitchell Caplan, vice chairman, CEO and president of Telebanc, the merger is the first attempt in the US to unite both banking and brokerage activities in one online company.
Cotsakos threw down the gauntlet for competitors, contending that the merger will "challenge the rest of the online financial services industry", which overall will find itself behind the combined force of ETrade and Telebanc.
"We believe that the time is right for a market catalyst to break it loose," he said.
At the same time as the ETrade and Telebanc announcement, Merrill Lynch was also conducting a press briefing to announce that it is launching what the company described as "a new model for personal financial services in the digital age", including an online service for US investors and a Web site that will offer links to e-commerce vendors. The new set of e-commerce services will be offered starting next month, with the online service starting in December, according to Merrill Lynch.
As for the ETrade-Telebanc deal, customers will be able to set up an account to cover a range of online financial transactions including paying bills, trading stocks and buying mutual funds, certificates of deposit and fixed income securities online, Cotsakos said.
"Millions of customers will have one online destination they can go to," he said.
Following the merger, Telebanc shareholders will own about 13 per cent of ETrade's fully diluted common stock, Cotsakos said. The boards of directors of both companies have approved the merger, which the companies expect to be completed in the third quarter, pending approval by regulators and shareholders.
Telebanc Financial is the holding company for Telebanc, which provides online banking services. California-based ETrade provides online investing services, and has a base of more than one million customers, according to the company.
The merger was inevitable, said analyst Alan Alper of Gomez Advisors, a Massachusetts-based firm that tracks performance of e-commerce sites and services, including online brokerages.
"There's a certain class of consumer who wants to deal with a one-stop shop," he said, adding that Gomez analysts aren't certain the trend toward a one-stop online financial service will be long term.
"The bottom line for ETrade is that it just wants to acquire as many accounts as possible and bring people into the online banking world," Alper said.
The merger also brings together two companies that are similar in that they are young and aggressive and after the same cluster of business partners, he said. The pairing further represents an "interesting turn of events" because in the past, banks have bought online brokerages and now a reverse trend could be in the offing, he said.