JPMorgan Chase & Co. announced today it has signed a definitive agreement to sell its online deep discount brokerage business, BrownCo, to E*Trade Financial for US$1.6 billion in cash.

The deal reflects the ongoing move among financial firms to shed non-core businesses, while the discount brokerage business has been steadily consolidating. “BrownCo is a premier brokerage asset and an ideal strategic fit for E*Trade Financial, accelerating the build out of our business model in this fast-consolidating industry,” said Mitchell Caplan, CEO at E*Trade.

Back in early August, E*Trade announced the acquisition of Bank of Montreal’s U.S.-based online brokerage operations of Harrisdirect for US$700 million in cash.

BrownCo has approximately 200,000 active accounts, 28,000 daily average revenue trades, $3 billion in margin accounts, US$3.4 billion in customer credits and $29 billion in client assets. The business provides online deep discount brokerage services and focuses on the active trader segment of the market.

JPMorgan Chase says it expects to recognize an after-tax gain of approximately US$700 million. The sale is subject to normal regulatory approvals and is expected to close by year-end 2005.

Jes Staley, head of JPMorgan Asset & Wealth Management, said, “We are proud of the business the people of BrownCo have built. It has been a valuable and profitable asset for our firm. We have decided, however, that it is in the best long-term interests of our shareholders and BrownCo’s customers that we sell the unit to E*Trade Financial, a recognized industry leader in online brokerage, and that our Asset & Wealth Management group focus on its core investment management and wealth advisory activities.”

In response to the deal, Standard & Poor’s Ratings Services affirmed its rating on E*Trade. It says that, “The acquisition of BrownCo provides strategic benefits to E*Trade at a critical time when the industry is rapidly consolidating and companies vie for acquisition targets in an attempt to gain scale and market power. In addition to approximately 28,000 daily average revenue trades, BrownCo brings an affluent, sophisticated investor base with very high total assets per account as well as high margin balances per account.”

S&P cautions that the firm will be faced with managing execution risk resulting from its two large acquisitions (Harrisdirect and BrownCo) over a short time horizon; however, it says the firm’s track record of successfully integrating acquisitions somewhat mitigates these concerns. “In addition, fierce competition in a consolidating industry may continue to pressure product pricing at E*Trade as well as at competitors,” it notes.

S&P says it expects E*Trade’s franchise to continue to strengthen due to its integrated business model, leverage of technology, and streamlining of its business.