(Adds details, background; figures in U.S. dollars unless noted)
NEW YORK/TORONTO, July 14 (Reuters) - Bank of Nova Scotia (BNS.TO) will expand its wealth-management business by buying the Canadian operations of U.S. online brokerage E*Trade Financial Group Inc (ETFC.O) for $442 million cash, the companies said on Monday.
Scotiabank, Canada's third-largest bank, said the deal for E*Trade Canada adds 125,000 active accounts to its books, and doubles its footprint in the Canadian online investing market.
"Direct investing is an important and growing segment in Canada, even much more so in Canada than in other markets," Scotiabank Chief Executive Rick Waugh said on a conference call.
The acquisition will add 2 Canadian cents to Scotiabank's earnings per share by 2011, and that estimate does not include new revenue that may come from selling bank products and services to E*Trade customers, the head of domestic banking, Chris Hodgson, said on the call.
"We expect minimal customer attrition," Hodgson added.
E*Trade, which said it would start selling noncore assets to focus on its online brokerage business, said the sale and the return of related capital will amount to about $511 million in net cash proceeds.
E*Trade Canada provides services to retail and institutional investors trading on electronic platforms.
About 80 percent of the Canadian business comes from retail investors and the rest from institutional players, Scotiabank executives said.
The deal brings about C$4.7 billion in client assets under administration and 190 E*Trade Canada employees, and is expected to close in September or October. It needs various regulatory approvals.
The acquisition builds on Scotiabank's 2007 purchase of Canadian online brokerage boutique TradeFreedom Securities Inc, and the 2002 purchase of Charles Schwab Canada. But bank executives declined to say how many trades per day are done by its online brokerage customers and those of E*Trade Canada.
The deal was announced after the close of markets in North America.
Scotiabank stock closed down C$1.64, or 3.6 percent, at C$43.82 on the Toronto Stock Exchange. E*Trade fell 26 cents, or 9.6 percent, to $2.46 on Nasdaq.
But in after-hours trade, E*Trade shares rose 20 cents a share to $2.66.
($1=$1.01 Canadian) (Reporting by Jonathan Spicer in New York and Lynne Olver in Toronto; editing by Rob Wilson)