E*Trade Financial said on Monday it was acquiring the online brokerage operations of Harrisdirect from Canada’s BMO Financial Group for $700 million in cash.

E*Trade expects to have more than 4 million customer accounts and approximately $130 billion in customer assets once the deal closes. It also helps compensate for E*Trade’s failed bid in June to acquire Ameritrade.

The Bank of Montreal originally bought Harrisdirect from Credit Suisse First Boston back in 2001 for $520 million when it was known as CSFBdirect, so it will make about $180 million on the sale to E*Trade. Once the deal closes, E*Trade will also pay an additional $50 million to BMO.

The online trading field has been consolidating, with Ameritrade acquiring TD Waterhouse for $2.9 billion in June after rejecting E*Trade’s bid (see Ameritrade Buys Waterhouse). E*Trade CEO Mitchell Caplan has also left open the possibility for more acquisitions in the financial services field and related industries.

“We will continue to actively pursue opportunities that enable us to further build out our distinct business model,” he said.

Cost Savings

The combination between E*Trade and Harrisdirect should produce considerable cost savings. The transaction is expected to deliver pre-tax operating synergies of approximately $186 million. That amount will include $114 million in expense synergies and $72 million in revenue synergies.

After the integration of Harrisdirect is complete, the deal is expected to generate $0.17 earnings per share in accretion on a full-year run rate basis. E*Trade believes it will achieve full-year run rate synergies nine months after the deal closes.

The Harrisdirect acquisition will give E*Trade an additional 430,000 active customer accounts with an average account balance of over $70,000. E*Trade will also gain $32 billion in assets, $5 billion in cash, $1 billion in margin debt balances, and approximately 15,000 more trades per day.

In addition, E*Trade obtains marketing rights to more than 300,000 additional customer accounts.

Once the deal closes, E*Trade anticipates it will control total customer cash and deposits of $24 billion, and over $3.2 billion in average margin debt.

With the acquisition, Harrisdirect clients “will benefit from an expanded breadth of product capabilities and product enhancements that E*Trade will provide, given its significant scale and market presence,” said Tony Comper, chief executive of BMO Financial Group.

E*Trade shares were up $1.42 to $16.28, while BMO shares were up $0.57 to $49.24 in recent trading.

“The online brokerage business is consolidating and firms are determining whether they want to be the last standing or if they want to get acquired,” said Larry Tabb, chief executive of the financial consulting firm the Tabb Group.

He points out that Fidelity has been leading a price war, putting pressure on the remaining providers, including Schwab, Ameritrade, E*Trade, and Scottrade.

While E*Trade has responded by trying to broaden into more of an all-around full-service financial firm, Ameritrade has concentrated on remaining just an online brokerage company, and Scottrade has focused on active traders with its branch network.