Regulatory Outlook | 03.25.20
Announced Megamergers Could Reshape Advisory Landscape
Right before global pandemic fears helped erase $5 trillion in global stock value, Wall Street was rocked by two mega deals that taken together will likely reverberate in the financial services industry for years to come as investors demand new products — and rock-bottom prices.
On Feb. 18, Franklin Resources announced it was buying Legg Mason for $4.5 billion in cash. Two days later, Morgan Stanley said it was buying E-Trade for $13 billion, the biggest takeover by a U.S. bank since 2008.
Both deals are a harbinger of industry consolidation and the convergence of sophisticated, institutional investing — collectively called 'Wall Street" — and retail/high-net worth or so-called "Main Street."
Morgan Stanley, industry observers opined, appeared to be signaling that it was moving away from Wall Street and more toward Main Street, following the lead of Goldman Sachs (owners of Marcus) and perennially at the forefront of every new trend. The announced Morgan Stanley/E-Trade deal comes on the heels of Charles Schwab's $26 billion purchase of TD Ameritrade in 2019. The era of products that pay investors surely can’t be too far off now, considering where these giants have forced commissions over the years.
The deals coming in a cascade just prior to the bottom falling out of the market would also appear to signal an acceptance that the great bull market of the 2010s had run its course; the crash during the end of February (the S&P 500 lost 11.5% in the last week of that month). The mergers together show that the twin trends of mass consolidation and fee compression are continuing unabated; indeed, it now seems ownership of customer data is emerging as the more crucial form of asset manager/broker-dealer/financial services conglomerate capital.
Franklin Templeton’s assets will reach $1.5 trillion. At the time the deal was announced, target Legg Mason managed more than $800 billion. The firm’s fixed-income jewel, Western Asset Management, could be a key part of Franklin's strategy to launch more fixed income ETFs. Franklin, longtime owner of international and emerging markets stalwart Templeton, now has a hand in nearly every conceivable asset class and geography.
Legg Mason’s other s affiliates include: Brandywine Global, Clarion Partners, ClearBridge Investments, Martin Currie, QS Investors and Royce Investment Partners.