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E*Trade to Buy Custody Firm in Growth Push as Profits Remain Dull

E*Trade Chief Executive Officer Karl Roessner said the company sees TCA as a way to diversify revenue and prevent some customers from leaving.

NEW YORK (Reuters) - E*Trade Financial Corp (ETFC.O) plans to spend $275 million to acquire a firm that provides custody services and technical support to financial advisers, the discount brokerage firm said on Thursday.

Its agreement to buy privately held Trust Company of America (TCA) came as E*Trade reported disappointing third-quarter results.

On a conference call to discuss the news, several analysts questioned the strategy behind the deal since the two companies have little in common. They asked whether it would disrupt a publicly stated goal of growing E*Trade’s existing businesses or possibly putting itself up for sale.

In response, Chief Executive Officer Karl Roessner said the company is still pushing to grow organically. But it sees TCA as a way to diversify revenue and prevent some customers from leaving for the types of products and services TCA offers.

“This acquisition is strategically very good,” he said. “We will continue to track to our growth goals.”

TCA, which is based in Denver, caters to 180 registered investment advisers mostly in the Midwest and holds about $17 billion worth of institutional assets under custody.

E*Trade expects the transaction to close in the second quarter of 2018 and to generate about $80 million in additional revenue the following year.

Its shares fell 3.3 percent to $42.27 in after-hours trading, after the announcement.

The company reported a 2.9 percent drop in third-quarter profit, to $135 million, or 49 cents per share, below the average analyst estimate of 51 cents per share, according to Thomson Reuters I/B/E/S.

E*Trade became popular nearly two decades ago by running commercials that blasted financial advisers for high fees. It is now facing its own pressure as digital upstarts called roboadvisers have come onto the scene, offering automated investment advice for a fraction of the cost of many incumbents.

Even as its profits have come under pressure, E*Trade is still reporting growth in accounts. It added 26,000 online brokerage accounts in the third quarter, a 4.8 percent growth rate year to date, in line with targets.

As of September 30, it had $60 billion in customer deposits and $365 billion in their assets spread across 3.5 million accounts.

Reporting By Elizabeth Dilts; Editing by Lauren Tara LaCapra and Cynthia Osterman

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