E*Trade's Capital One Investing Acquisition: A Game-Changing Move

E*Trade Financial Corporation acquired Capital One's online investment business in 2018. The deal involved the transfer of approximately one million retail brokerage accounts, with a total of $15.4 billion in customer assets, including $1.6 billion in customer cash. E*Trade paid $109 million for the acquisition, which was intended to expand its customer base and increase its US household penetration. The move was part of a trend of mergers and acquisitions in the discount brokerage industry, as companies sought to survive in a competitive market with declining commissions.

E*Trade acquired Capital One's online investment business for $170 million

E*Trade Financial Corporation acquired Capital One's online investment business for $170 million in an all-cash transaction. The deal included 1 million retail brokerage accounts with around $18 billion in client assets, including $1.7 billion in cash and $115 million in margin loans. The acquisition was expected to close in the third quarter of 2018, subject to regulatory approvals.

E*Trade's CEO, Karl Roessner, highlighted the scalability of their business model as a key factor in the acquisition's attractiveness, allowing them to efficiently integrate a large number of new customers. The move significantly expanded E*Trade's customer base and added substantial assets to its balance sheet.

Prior to the acquisition, Capital One's brokerage service was known as ShareBuilder, which it acquired along with online bank ING Direct in 2012. Capital One's decision to sell its online investment business came after the company posted a fourth-quarter loss of $1.05 billion and faced challenges in the highly competitive brokerage industry, with rivals offering zero-commission trades.

The acquisition by E*Trade was part of a broader trend of mergers and acquisitions among online discount brokers. The integration of Capital One Investing accounts into E*Trade's platform was expected to occur later in 2018, with customers being assured of a seamless transition.

E*Trade acquired 1 million retail brokerage accounts from Capital One

E*Trade Financial Corporation (NASDAQ: ETFC) announced on November 6, 2018, that it had completed the acquisition of approximately one million retail brokerage accounts from Capital One Financial Corporation. The deal, which was first announced in January 2018, cost E*Trade $170 million, though another source states the price was approximately $109 million.

The acquisition added roughly $1.7 billion in cash and $115 million in margin loans to E*Trade's balance sheet. The new accounts also carried $15.4 billion in total customer assets, including $1.6 billion in customer cash.

E*Trade's Chief Executive, Karl Roessner, commented:

> We are thrilled to welcome these new customers and to show them the best of E*Trade, including our broad product suite, professional-grade tools, and exceptional service. This is a fantastic opportunity to materially broaden our footprint, efficiently adding a large number of customers to our highly scalable platform. We are already hard at work to deepen our engagement with these new customers and ensure their experience with us is seamless and first-class.

The deal was expected to have a neutral impact on 2018 earnings, and funding came from existing corporate cash.

The acquisition expanded E*Trade's customer base

E*Trade's acquisition of Capital One's online investment business significantly expanded its customer base. The deal, which was announced in January 2018 and completed in November 2018, saw E*Trade acquire approximately one million retail brokerage accounts from Capital One. This added a substantial number of new customers to E*Trade's platform, with the potential to deepen its engagement and relationship with them.

The acquisition was strategically important for E*Trade as it enabled the company to efficiently add a large number of customers to its highly scalable platform. The additional accounts strengthened E*Trade's position in the market and expanded its reach within the United States. E*Trade's CEO, Karl Roessner, emphasised the attractiveness of the acquisition, attributing it to the power and flexibility of their business model. He also highlighted the opportunity to materially broaden their footprint and increase their US household penetration.

The acquired Capital One accounts carried a significant amount of customer assets, including cash and margin loans, which contributed to E*Trade's balance sheet. While the clients in these new accounts traded less frequently than E*Trade's typical clients, the acquisition price was lower than E*Trade's usual client acquisition cost. This strategic move allowed E*Trade to expand its customer base at a relatively lower cost.

The expansion of E*Trade's customer base through this acquisition provided the company with new opportunities to cross-sell its products and services, enhance its market presence, and potentially increase its revenue. The integration of Capital One's customers marked a significant milestone in E*Trade's growth strategy and demonstrated its commitment to increasing its market share in the competitive brokerage industry.

Capital One customers were not expected to experience immediate changes

E*Trade's acquisition of Capital One's brokerage accounts was expected to be seamless for Capital One customers. The deal was described by E*Trade CEO Karl Roessner as "essentially an account scrape", meaning that customers would continue to use Capital One Investing as normal until the official move to E*Trade, which was expected to happen later in 2018. Until then, Capital One customers could continue to use their accounts as they always had.

The official move would see customers' assets (cash, stocks, etc.) and certain account history and other information move automatically to E*Trade. Customers would likely go to bed one night as a Capital One Investing customer and wake up the next day as an E*Trade customer.

The acquisition of Capital One's brokerage accounts was expected to expand E*Trade's customer base significantly. E*Trade was set to acquire more than 1 million self-directed brokerage accounts, including taxable accounts or IRAs that clients manage on their own. The deal did not involve small-business 401(k) plans administered by Capital One.

E*Trade paid $170 million for the brokerage accounts, which added roughly $1.7 billion in cash and $115 million in margin loans to its balance sheet. The acquisition price was lower than E*Trade's usual client acquisition cost, and the company expected to acquire more than 1 million customers in one go.

While Capital One customers were not expected to experience immediate changes, they would eventually need to adjust to E*Trade's pricing and rates. For example, investors who purchased Transaction Fee mutual funds through a Capital One Investing ShareBuilder plan could re-activate their plan through E*Trade's Automatic Investing, with the transaction fee remaining unchanged.

E*Trade CEO Karl Roessner described the deal as an opportunity to materially broaden our footprint

E*Trade CEO Karl Roessner described the deal with Capital One as an opportunity to "materially broaden our footprint". E*Trade acquired Capital One's online investment business for $170 million, adding roughly 1 million retail brokerage accounts with $18 billion in client assets. This move allowed E*Trade to efficiently add a large number of customers to its highly scalable platform and expand its US household penetration.

Roessner emphasised the scalability of E*Trade's business model, highlighting that the acquisition provided an opportunity to efficiently bring on new accounts and expand their reach. The deal was expected to close in the third quarter of 2018, with no immediate changes for Capital One customers until then.

The addition of these accounts significantly expanded E*Trade's customer base. While the acquired Capital One accounts traded less frequently and had lower asset values than the average E*Trade account, the acquisition price was lower than E*Trade's typical client acquisition cost. This strategic move by E*Trade allowed them to acquire a large number of customers at a lower cost, broadening their footprint in the market.

The acquisition of Capital One's brokerage accounts was part of a trend in the discount brokerage industry, where companies were consolidating to survive and thrive in a competitive environment with declining commissions and the emergence of upstarts like Robinhood. E*Trade's move to acquire Capital One's accounts was a strategic decision to expand its customer base and enhance its market position.

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