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E*Trade buying TeleBanc
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June 1, 1999: 4:40 p.m. ET
Online brokerage, widening its portal, will pay $1.8B for Web's largest bank
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NEW YORK (CNNfn) - Online broker E*Trade Group intends to acquire electronic banking pioneer TeleBanc in a $1.8 billion stock deal, the companies said Tuesday.
The deal would be the first combination of an e-broker with an Internet bank and would help E*Trade offer a wide slate of financial services online, including the purchase of mutual funds, certificates of deposit and bill payment.
As federal law now stands, the link-up of a bank and a brokerage requires the attention of U.S. regulators, and the fact that the E*Trade-Telebanc would be among two cyberspace companies is no exception to that.
Under the terms of the agreement, Telebanc (TBFC) shareholders will receive 2.1 shares of E*Trade common stock for each share they own, valuing the company at $93.45 a share. TeleBanc shareholders will hold about a 13 stake in the online brokerage.
E*Trade expects the transaction to increase both revenue and earnings immediately upon closing, which is expected sometime this fall.
E*Trade: Staying a step ahead
E*Trade (EGRP) has been under mounting competition in the brokerage business, as Wall Street heavyweights move into the arena, joined this week by the long-awaited launch of Internet trading by Merrill Lynch (MER).
Palo Alto-based E*Trade already has an agreement with E-Loan Inc. that allows it to sell mortgages online, and in April it bought financial adviser Clearstation Inc.
Following this deal, the combined entity will be able to offer consumers everything from checking accounts to loans to investment products, much as many traditional brick-and-mortar banks already do.
A regulatory once-over is likely
The Glass-Steagall Act of 1933 prevents a bank from gaining more than 25 percent of its income from brokerage service.
David Runkel, a spokesman for the House Committee on Banking and Financial Services, said a bill may be sent to the president as early as July that could end that requirement.
As it now stands, the Telebanc-E*Trade merger would require the approval of Federal Reserve Board regulators, who have oversight about the structure of any such deal.
Such a marriage of a bank and a brokerage, the first of its kind in cyberspace, would find a key precedent in last year's merger of Citibank and Travelers Group into Citigroup (C).
That deal put together Citibank, a big conventional bank, with the Travelers insurance giant and its Salomon Smith Barney brokerage subsidiary.
The financial service titan was granted two years to come into compliance with Glass-Steagall, but that now may appear moot as the banking reform bill is prepared for presidential approval.
Shares of Telebanc closed up 8 to 74-1/2, while E*Trade (EGRP) shed 5-3/16 to 39-5/16.
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E*Trade
TeleBanc
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