Morgan Stanley buys E*Trade for $13 billion

It's the biggest takeover by a Wall Street bank since the financial crisis. Morgan Stanley said Thursday that it's buying online trading pioneer E*Trade Financial -- paying $13 billion in an all-stock deal.

That's a hefty 31% premium over E*Trade's closing price Wednesday. The combined institution will boast more than $3 trillion in client assets.

It's another big step in Morgan Stanley's transformation from a traditional investment bank to one that serves small investors as well. The white-shoe firm has been growing its wealth management unit under CEO Jim Gorman. That move is aimed at stabilizing earnings by shielding the company from the volatility faced by its traditional investment banking and trading businesses.

Founded in 1982, E*Trade became popular as a cheap place for retail investors to trade stocks.

But its revenue growth has been hit by competition from digital startups called robo-advisors -- as well as lower interest rates and falling fees. E*Trade dropped commission fees for most trades to ZERO in October, following rivals including Charles Schwab -- which was first to announce free stock and ETF trades.

News of the acquisition sent Morgan Stanley shares lower, but E*Trade shares rocketed higher in early trading Thursday.