Online financial services provider E*Trade Group (Nasdaq: EGRP) announced Thursday that it has signed a definitive agreement to acquire online mortgage originator LoansDirect.
Morningstar.com analyst Alyssa Sibley told the E-Commerce Times that the acquisition is”another indication of [E*Trade’s] commitment to diversifying and creating additional streams of revenue.”
Menlo Park, California-based E*Trade said that the deal will be structured as a purchase with E*Trade stock used as consideration, but did not disclose other terms of the agreement.
Sibley said it is notable that E*Trade is using stock to pay for the purchase because that stock has dropped dramatically in the past year. E*Trade was trading at US$10.81 at mid-day Thursday, up 8.5 percent from its Wednesday close of $9.97. E*Trade’s 52-week high of $34.25 was reached in March.
E*Trade said that it expects the purchase to “increase yields on a sizeable portion of the bank’s portfolio, resulting in a substantial revenue and net income gain.”However, because E*Trade declined to release more details of the purchase, Sibley said she would expect the impact on the company’s financial status to be “minimal.”
E*Trade also said that “by leveraging the scalable and cost-efficient LoansDirect model as a springboard to enter the consumer credit market,” it will be creating the first online financial services company to integrate a mortgage origination platform with both Internet banking and online brokerage services.
The deal is expected to close in the current quarter, following regulatory and other approvals.
In addition to providing E*Trade with total control over the mortgage process, the acquisition allows the company to diversify its revenue stream by adding additional channels, such as origination points, loan-related fees and gain on sale revenue.
Sibley said that E*Trade’s online brokerage business is mature and does not need much tinkering, but noted that E*Trade’s banking services still require a “little tooling.”
She added that since its acquisition of Telebanc Financial in July 1999, E*Trade has done a “great job of building up the deposit base,” and that this move should strengthen E*Trade Bank even more.
In December, E*Trade Bank reported more than $11 billion in assets and $5 billion in deposits, more than double the $4.9 billion in assets and $2.3 in deposits that it reported a year earlier.
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