ARLINGTON, Va. -- Leading online broker ETrade Group Inc. is buying online banker Telebanc Financial Corp., creating an Internet-based financial services company.
Under the terms of the deal announced Tuesday, ETrade will acquire Arlington-based Telebanc for stock worth about $1.8 billion.ETrade, based in Palo Alto, Calif., made its name as a stock brokerage but has been trying to diversify. The company already sells mutual funds and has a deal with online mortgage provider E-Loan Inc. that lets ETrade customers apply for home mortgages online.
With Telebanc in its fold, ETrade has moved closer to becoming a full-service financial site, offering a range of online services for all sorts of transactions, company officials said.
"This e-merger creates the most comprehensive platform for online brokerage and banking," Mitchell H. Caplan, Telebanc's vice chairman, president and CEO, said in the statement.
He said through Telebanc, ETrade will be able to offer its one-million-plus customer accounts FDIC-insured banking products and services.
Telebanc Financial is the holding company for Telebank, one of several Internet-based banks that serve customers without any actual branch offices. Since the banks don't have to pay for branches, they say they can operate more inexpensively -- and thus pay higher deposit rates and charge lower fees -- than traditional banks.
Though most online brokers offer some limited banking services, only one other company has tried to combine large-scale Internet banking and brokerage. That company, Royal Bank of Canada, owns Bull & Bear Securities Inc. and Telebanc rival Security First Network Bank.
But Telebanc is much larger than Security First and its other rivals, ETrade and Telebanc said in their statement.
Under the merger agreement, Telebanc shareholders will get 2.1 shares of ETrade common stock for each share of Telebanc common stock. On the NASDAQ Stock Market Friday, Telebanc closed at $66.50, up $4.25. ETrade closed at $44.50, up $2.50.
Officials said the merger should close this fall, pending regulatory and stockholder approval.