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E-Trade

E*TRADE FINANCIAL Corporation (NASDAQ: ETFC) is a financial services company based in New York, NY, United States. The company name is often rendered E*Trade or E-trade. It is a holding company, the major business of which is an online discount stock brokerage service for self-directed investors. Investors can buy and sell securities such as stocks, bonds, options, mutual funds, and exchange-traded funds via electronic trading platforms or by phone. The company also offers banking and lending products such as checking and savings accounts, money market accounts, certificates of deposit, and credit cards. E*TRADE's stock is traded on the NASDAQ under the ticker ETFC.^[3] E*TRADE is regulated and licensed by FINRA.

History

In 1982, William A. Porter and Bernard A. Newcomb founded TradePlus Inc. in Palo Alto, California. In 1991, Porter founded a new company, E-Trade Securities, Inc., with several hundred thousand dollars of startup capital from TradePlus. E-Trade offered its trading services via America Online and Compuserve. In 1994, its revenues neared $11 million (up from $850,000 in 1992). It later reorganized and emerged under the name E-Trade Group, with E-Trade Securities as its principal subsidiary.^[4]

In August 1996, it went public with Robertson, Stephens & Company as the lead underwriter. In 2003, the company changed its name from E-Trade Group Inc. to E*TRADE FINANCIAL Corporation.

In 2003, the Toronto-Dominion Bank held talks to merge its TD Waterhouse discount brokerage with E*TRADE, but the two sides could not come to an agreement over control of the merged entity.[1][2] In 2005, E-Trade made an unsoliticted offer for Ameritrade, currently the second largest US discount broker. Ameritrade instead purchased TD Waterhouse, with TD Bank holding a 39% stake in the new entity.[3]

In 2005, E*TRADE FINANCIAL acquired Harrisdirect, formerly a discount brokerage service of Bank of Montreal, and BrownCo, formerly a discount brokerage service of J.P. Morgan.^[5]

Divestiture of subprime portfolio

On November 29, 2007, E*TRADE announced a deal with the Citadel Investment Group in which Citidel purchased E*TRADE's securitized subprime mortgage investments for $800,000,000 in cash. The transaction removed the assets with the greatest market risk from E-Trade's consolidated balance sheet -- their $3 billion asset-backed securities (ABS) portfolio, including its ABS collateralized debt obligations (CDOs) and second lien securities. This resulted in a net $2.2 billion from the assets on their balance sheet. In addition to that divestiture, under the terms of the deal E*TRADE received $1.6 billion of capital in exchange for 12.5% senior unsecured notes and 84,687,686 shares common stock (equal to 19.99% of the then currently outstanding shares). Citadel received a seat on E*TRADE FINANCIAL's Board of Directors. Mitch Caplan resigned as CEO on the same day that the deal was announced.

Although E*TRADE's management admits that the deal was costly for E*TRADE, it removed the risk from those subprime investments and resulted in an infusion of $2.5 billion in cash.

Prior to the subprime mortgage crisis, E-Trade's stock price had reached a 52-week high of $26.08 and had a book value (assets - liabilities / number of shares outstanding) of $9.68 per share. However, Citigroup analyst Prashant Bhatia suggested that E*TRADE FINANCIAL could face a run on its bank operations and a bankruptcy filing, causing the stock to drop heavily.[4][5]

After the sell-off and the Citidel deal, E*TRADE's book value was $4.53 per share (a 52.2% drop), and the shares had reached a 52-week low of $3.46 per share (a 86.7% drop). Bloomberg News reported that E*TRADE had lost between 1-2% of their deposits. Moody's reported that E*TRADE saw a "17% drop in customer cash and deposits in the month of November". The company implemented a comprehensive turnaround plan at the end of 2007 which included an assessment of its organizational structure, operating expense base and balance sheet transition, along with a customer win-back campaign.

In March 2008, E*TRADE named Donald Layton, formerly JPMorgan Chase vice chairman, as its new CEO. Layton had joined E*TRADE's board of directors in November 2007, at the same time as the Citadel deal. Layton has been aggressively acting on the turnaround plan and the company has stabilized and is seeing the beginnings of a return to growth.

Notes

1. ^ Don Layton new CEO, Chairman, Mar 3, 2008
2. ^ E-Trade posts $1.7 billion loss for 4Q. Retrieved on 2008-02-15.
3. ^ Google Finance - NASDAQ:ETFC
4. ^ Funding Universe - E-Trade Financial Corporation History
5. ^ E-Trade to acquire BrownCo for $1.6B. San Francisco Business Times. September 30, 2005. Available at: http://www.bizjournals.com/sanfrancisco/stories/2005/09/26/daily46.html. Accessed September 12, 2007.

External links

• E-Trade official website
• Yahoo! - E-Trade Financial Corporation Company Profile
• Hoover's - E-Trade Financial Corporation Company Profile
• E-Trade Financial Corporation Company History

References

• [1] "E*TRADE Launches MarketTrader for Active Investors" PR Newswire, April 11, 2007. http://www.prnewswire.com.au/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/04-11-2001/0001466952&EDATE=