Wit Capital to Buy Online Bank From ETrade
In a move that signals more consolidation in the online banking business, Wit Capital Group Inc. agreed Monday to pay $328 million for an investment bank founded by online brokerage firm ETrade Group Inc., greatly increasing the number of first-time stock offerings available to ETrade’s customers.
The deal will allow Menlo Park, Calif.-based ETrade, with its 2.6 million customers, to focus on retail brokerage services and New York-based Wit to strengthen its primary business, online investment banking.
With the stock market’s decline slashing market values of many online financial firms, merger activity in this area is expected to heat up to compete with Wall Street giants, analysts said.
Already this year, the nation’s largest online broker, San Francisco-based Charles Schwab Corp., announced plans to buy rival online broker CyberCorp and U.S. Trust Corp., a money manager.
As part of the deal announced Monday, Wit will buy EOffering, and ETrade, which owns about 30% of EOffering, will purchase 2 million shares of Wit stock and acquire Wit’s 100,000 retail brokerage accounts.
Online investment banks offer companies a way to raise capital by selling shares over the Internet with lower fees than Wall Street’s established investment banks. Several have sprung up in recent years, including Wit Capital and W.R. Hambrecht & Co. Just this year, online bank Epoch Partners was formed by Charles Schwab, Ameritrade Holding Corp. and TD Waterhouse Group Inc.
EOffering was started with much fanfare in January, but the firm has been plagued with staff and strategy changes. The firm has lead-managed just one stock deal, a $73-million follow-on offering (as opposed to a more lucrative IPO), for First Sierra Financial Inc., an Internet business-equipment leasing firm, according to CommScan, a New York data firm.
In 1999, the firm was part of a team of underwriters on 63 equity deals worth $17.3 billion, or less than 1% of all equity offerings. So far this year, it worked on 61 deals, raising $25.21 billion, according to CommScan.
“If these online investment banks want to change the way things have been done on Wall Street for years, they are going to need to have more scale,” said Rich Repetto, an Internet financial services analyst with Lehman Brothers.
Repetto pointed out that EOffering hasn’t had a full-time chief executive in months, with Steve King, ETrade’s vice president and general manager of investment banking, serving as interim CEO since mid-January, replacing co-founder Walter Cruttenden III.
“This deal is such a good fit,” said Cruttenden, a longtime Orange County investment banker, who owned less than 10% of EOffering. “Both were nearly neck and neck in terms of participating in distributing in IPOs. Combined, they will be a category killer.”
*
Bloomberg News contributed to this report.
