The Wall.St Journal 21Feb2020

A8| Friday, February 21, 2020 ** THE WALL STREET JOURNAL.

WORLD NEWS

as CEO, said in an interview.

“This isn’t about legacy-build-

ing; it’s about getting [Morgan

Stanley] ready for prime

time.”

E*Trade became a house-

hold name in the late 1990s

with its dot-com vibe and

splashy Super Bowl commer-

cials. Falling commissions

have hurt its brokerage arm

and low interest rates have cut

into the money it makes by in-

vesting the idle cash its cus-

tomers leave in their accounts.

Its crown jewel is a compar-

atively low-profile business:

managing the stock that em-

ployees at hundreds of compa-

nies receive as part of their

pay. Those shares are typically

locked up for a few years and

when they become available,

E*Trade aims to move those

employees into brokerage ac-

counts. Morgan Stanley has a

competing business, which it

expanded a year ago by ac-

quiring privately held special-

ist Solium. After buying

E*Trade, Morgan Stanley

would have more than 4,

corporate customers and $

billion of stock held on behalf

of their employees.

The takeover, code-named

Project Eagle, is the largest

deal by a major Wall Street

player since the crisis, when

regulators arranged hasty

marriages in a bid to shore up

the financial system. Few have

tested the waters in Washing-

ton since then.

That the latest test comes

from Morgan Stanley, the

banking industry’s weakling

during the 2008 crisis and a

problem child for years after-

ward, is a testament to its re-

invention under Mr. Gorman.

The 61-year-old has cut riskier

trading operations and grown

steadier businesses like lend-

ing and wealth management.

Revenue hit a record $41 bil-

lion last year.

“We’re strong now, and I

believe you move from a posi-

tion of strength,” Mr. Gorman

vered as E*Trade started to

feel tremors of the coming

meltdown in its portfolio of

home-equity loans.

This time, talks began in

late December, when a two-

hour conversation between

Messrs. Gorman and Pizzi con-

vinced both men of the deal’s

merits. Mr. Gorman said the

tumult kicked off by Schwab

made E*Trade “more open” to

a deal but said he wasn’t low-

balling: The deal price of

$58.74 a share, all in Morgan

Stanley stock, is 34% higher

than E*Trade’s price before

Schwab announced its fee cut.

Morgan Stanley expects to

recoup that premium through

$400 million of cost cuts and

additional savings of $150 mil-

lion from using E*Trade’s low-

cost deposits to replace more

expensive funding.

Mr. Gorman said he also

sees an opportunity to take

E*Trade international, where

it has no wealth-management

presence.

All of Wall Street is on the

hunt for more reliable sources

of revenue after postcrisis reg-

ulations and a long period of

eerie calm in the markets

crimped trading. JPMorgan

Chase & Co. and Bank of

America Corp. are getting big-

ger in payments, while Morgan

Stanley’s closest peer and

fierce rival,Goldman Sachs

Group Inc., is building an on-

line retail bank.

Mr. Gorman is proving him-

self to be one of the savvier

corporate deal makers. He

pried wealth manager Smith

Barney away for a song from a

weakenedCitigroup Inc. in

the wake of the crisis. Here he

seized on the brokerage price

war to nab E*Trade. Morgan

Stanley has also been scouring

targets in asset management,

where it is smaller and nichier

than peers, people familiar

with the matter have said.

The E*Trade acquisition is

expected to close in the fourth

quarter.

said.

He has sounded more ac-

quisitive in recent months and

floated a trial balloon with

regulators and investors by

buying Solium last year for

$900 million. Morgan Stanley

shares had gained 40% since

September through Wednes-

day, giving him a more richly

valued currency to shop with.

Mr. Gorman said he has

been eyeing E*Trade since

2002, when he was an execu-

tive at Merrill Lynch. He

reached out again in 2007,

when he was tasked with fix-

ing Morgan Stanley’s broker-

age arm, but negotiations wa-

Talks began in late

December, soon

after Schwab cut its

trading fees to zero.

tumbling and raised questions
about whether the brokerage,
dwarfed by a merged competi-
tor, could survive alone.
Morgan Stanley already has
15,500 human advisers cater-
ing to millionaires and last
year rolled out an online-only
tool for customers with less
money and less-complicated
financial lives. E*Trade will
slot into that wealth-manage-
ment arm, which will have
more than eight million users
and $3.1 trillion in client
money once the deal closes.
“We’ll take on Schwab.
We’ll take on Fidelity,” Mr.
Gorman, now in his 10th year

Continued from Page One

Bank Bets

On Small

Investors

right time to pass the reins to
new leadership.”
Mr. Wexner, the longest-ten-
ured CEO of an S&P 500 com-
pany, was the last man stand-
ing from a generation of
merchants who created brands
that ruled America’s malls. He
opened his first store, The Lim-
ited, with a $5,000 loan from
his aunt.
From his base in Columbus,
Ohio, he built a global retailing
empire that housed mall fix-
tures like The Limited, Aber-
crombie & Fitch and Express.
At its peak in 2015 it was
worth $29 billion. The empire
was driven by Mr. Wexner’s be-
lief that Americans enjoyed
shopping in malls, even as
smartphones changed the way
people buy and socialize.
In a 2018 interview with the
Journal, he blamed the demise
of clothing chains in the mall
on the merchandise they sold
rather than their location or
marketing. He argued that
specialty retailers need to fo-
cus on products with “emo-
tional content,” such as linge-

Continued from Page One

rie and beauty.

“Twenty years ago, we had

jeans. Everybody was very ex-

cited about jeans,” he said in

the interview. “That category is

lost.”

Victoria’s Secret, which Mr.

Wexner acquired in 1982, was

one of his biggest successes. It

grew from a catalog with a

handful of stores to dominate

the lingerie market with an-

nual sales topping $7 billion.

The brand, which was built

around supermodel “Angels”

and padded bras, sent out cat-

alogs and televised an annual

fashion show—though later its

overtly sexual marketing drew

criticism.

Even as shopping shifted

online and lingerie startups

like ThirdLove advertised

comfort and inclusivity over

sex appeal, Mr. Wexner bet on

opening more stores and ad-

justing products rather than

changing the marketing. He

also defended malls and the

vision behind Victoria’s Secret.

“The brand has lost its way,

while the lingerie market is

not large or high growth and

has become commoditized,”

said Jefferies analyst Randal

Konik. “Furthermore, with ath-

leisure taking over, the need

for regular bras continues to

wane.”

An L Brands spokeswoman

said Thursday that Mr. Wexner

wasn’t available for comment.

With malls drawing fewer

people and anchors like Sears

and Macy’s closing hundreds of

stores, even some big mall

owners have tried to shift away

from retail in recent years.

They have turned vacant de-

partment stores into grocery

stores or added fitness clubs

and restaurants.

Still, L Brands’ other busi-

ness, the Bath & Body Works

chain, has continued to post

strong sales gains even with

hundreds of stores in malls.

L Brands said it had pro-

moted one of its longtime exec-

utives, Andrew Meslow, to take

over as chief executive and be

added to the board when the

Victoria’s Secret deal closes.

Three longtime board mem-

bers, including L Brands’ lead

independent director, will step

down at the next annual meet-

ing, the company said. Two

other directors left last year

amid pressure from an activist

investor. Mr. Wexner, who owns

a 17% stake, and his wife, Abi-

gail, will keep seats on the

board.

L Brands shares fell 3.6% on

Thursday. The shares had ral-

lied in recent weeks after the

Journal reported that L Brands

was in talks with Sycamore and

that Mr. Wexner was in discus-

sions to step aside as CEO of

the company.

L Brands will keep a 45%

stake in the Victoria’s Secret

business and use proceeds of

the sale to pay down some of

its $5.5 billion in debt. The

deal is expected to close in the

second quarter, the company

said.

The sale price is lower than

some analysts expected.

Sycamore has a history of

scooping up struggling retail-

ers, slashing costs and selling

off assets. It bought The Lim-

ited in 2017 after the chain

filed for bankruptcy protection

and it owned the Nine West

chain, which filed for bank-

ruptcy protection in 2018. The

New York firm’s biggest deal

was its nearly $7 billion lever-

aged buyout of Staples Inc. in

2017.

Even in his 70s, Mr. Wexner

had a heavy hand in the com-

pany’s operations and a few

years ago moved to take direct

oversight of the Victoria’s Se-

cret business, ousting the

unit’s CEO, eliminating its

swimwear and cutting the

brand’s catalog. But sales be-

gan to sag and, despite efforts

to revive the business, it never

turned around.

Last year, activist hedge

fund Barington Capital Group

LP built a small stake in L

Brands and urged the company

to consider splitting the fast-

growing Bath & Body Works

chain from Victoria’s Secret. L

Brands added two new direc-

tors and signed an agreement

with Barington to have the

fund serve as a special adviser.

Those communities created a

prosperous agriculture indus-

try, turning what was largely

empty land into farms of bell

peppers and succulent Majd-

hool dates.

To work and harvest the

lands, Israeli farmers have re-

said. “He can’t give away our

land to another people.”

After capturing the valley

from Jordan in a 1967 war, Is-

rael soon sent citizens to live

there to create a civilian-led

security buffer along the once-

hostile Jordanian border.

don’t know when the situation

could explode,” he said.

Outside Jericho’s city hall,

Tawfiq Alqadi, 62, was having

a midday coffee with a few

other retirees sitting around a

table. “We will do all we can

to oppose Trump’s plan,” he

lied on Palestinian laborers,

who receive wages roughly

three times as large as they

would for similar work in Pal-

estinian-controlled areas. Pal-

estinian farmers have also ad-

opted Israeli farming

techniques and crops, raising

hope for an independent and

prosperous Palestinian farm-

ing industry in the area.

Around 6,000 Palestinians

are employed year-round by

Israeli farmers in the Jordan

Valley, with the number reach-

ing 20,000 during harvest

times, Israeli officials said.

In a 12-month period of 2017

and 2018, Israeli farmers sold

$174 million of produce, half of

which was exported abroad, ac-

cording to Mr. Vaisler. Revenue

from dates is expected to rise

around an additional $58 mil-

lion annually over the next de-

cade, he added.

Palestinian revenue from

dates now amounts to around

$70 million to $80 million an-

nually, Mr. Daiq said, adding

he expected that number to

grow to $200 million in the

coming six to seven years.

Signs of tension have al-

ready begun to materialize

north of Jericho. Armed

groups of Israeli soldiers could

be seen patrolling the streets

of nearby small Palestinian vil-

lages along a main road

through the valley the day af-

ter Mr. Trump released his

peace plan.

Supporters of annexation

say Israeli control of the Jordan

Valley is essential to Israel’s se-

curity, allowing it to defend

against potential invasions

from the east and weapons

smuggling into the West Bank.

The Trump administration

cites the same security ratio-

nale in proposing awarding

the territory to Israel. Under

the U.S. plan, the city of Jer-

icho—considered one of the

oldest inhabited cities in hu-

man civilization—would be en-

tirely surrounded by Israeli

territory.

one day serve as the agricul-

tural backbone of an indepen-

dent state’s economy. It has al-

ready caused deep concern

among Palestinian laborers

and farmers who warn that

frictions will result from any

efforts to annex territory.

Some Israelis in the valley

share those concerns. “Presi-

dent Trump spoke about a win-

win situation in the future,”

said No’am Vaisler, the Israeli

chairman of the Agricultural

Committee for the Jordan Val-

ley regional council. “But it’s a

win-win situation now.”

Around 10,000 Israelis and

80,000 Palestinians live in the

Jordan Valley, according to the

Israeli nongovernmental or-

ganization Peace Now, spread

across a patchwork of farming

towns and agricultural lands

that defy easy division.

The night Mr. Trump re-

vealed his peace plan, Ismail

Daiq, chief executive of the

West Bank-based Valley Trad-

ing Co. and a former Palestin-

ian agriculture minister, said

he couldn’t sleep, his mind

racing with questions.

He said about two-thirds of

his 600 hectares of date trees

would become Israeli land un-

der the proposed plan. “In the

last 30 years, [the Jordan Val-

ley] has been a peaceful area,”

said Mr. Daiq. “Now I expect

the problems to start.”

Salem Ghrouf, the Palestin-

ian mayor of Jericho, the de

facto Palestinian capital of the

Jordan Valley, said he and

other officials were working to

keep protests nonviolent in

the majority-Palestinian West

Bank, of which the Jordan Val-

ley makes up about 30% of the

territory.

But Mayor Ghrouf said he

couldn’t anticipate how Pales-

tinians would react to a U.S.

proposed peace plan that would

isolate his city from surround-

ing villages, most of which rely

on farming for a living, and

prevent the natural expansion

of the urban population. “We

JORDAN VALLEY—For three
decades, Israeli date farmer
Yaakov Elbaz has slept with an
M16 close to his bed and a pis-
tol under his pillow, afraid Pal-
estinian assailants would at-
tack his village to try to drive
his family off disputed land.
Despite his wariness, Mr.
Elbaz’s farm in the West Bank
has enjoyed years of growth,
with few disruptions to pro-
duction on farmland that is
now home to 8,000 date trees
producing about $3 million in
annual revenue.
“I’d be a liar if I told you
the situation isn’t very good,”
said the father of four.
This borderland hasn’t been
especially dangerous for Israe-
lis for several decades, even
though the potential of vio-
lence has lingered here in the
wake of two deadly uprisings
Palestinians launched against
Israel since the late 1980s. But
now, after years of prosperous
and largely peaceful coexis-
tence, a drive to solidify Is-
rael’s sovereignty over the
contested Jordan Valley is
threatening the delicate rela-
tionship between Israeli and
Palestinian farmers.
Israeli Prime Minister Ben-
jamin Netanyahu, who is fac-
ing his third election in less
than a year on March 2, has
vowed to annex the Jordan
Valley and West Bank settle-
ments. That campaign pledge
was largely endorsed by the
Trump administration last
month when it released its
long-awaited peace plan call-
ing for extending Israeli sover-
eignty over the fertile valley.
The plan, if implemented,
would scuttle Palestinian
hopes that the valley could

BYDOVLIEBER

Trump Peace Plan Unsettles Jordan Valley

Annexation by Israel is

prospect that makes

Palestinian and some

Israeli farmers nervous

Jerusalem

Rehovot

Netanya

Tel Aviv

Dead

Sea

Jordan

River

Nablus

Jericho

Hebron

Jenin

Tulkarm

ISRAEL

JORDAN

WEST BANK

JORDAN

VALLEY

10 miles

10 km

Landthatwouldbe

annexedbyIsraelunder

Trumpproposal

Palestiniancommunities

withinproposed

annexation

Israelisettlements*

Barrier

Planned

barrier

Med.

Sea

SYRIA

JORDAN

LEB.

ISRAEL

EGYPT

Area of

detail

Sources: Hagit Ofran, Peace Now; Dan Rothem

*The Trump plan calls for all Israeli settlements, including those located outside the designated annexation area, to become Israeli territory.

ATrumpadministrationproposal,reflectedinamaptheWhiteHousehascalledconceptual,would

allowIsraeltoannexmorethan30%oftheWestBank,includingtheJordanValleyandnearly

Palestiniancommunities.

FROM PAGE ONE

Victoria’s

Secret Sold

By Wexner

Les Wexner is also stepping down as the head of L Brands, the parent company of Victoria’s Secret.

TY WRIGHT FOR THE WALL STREET JOURNAL