E*TRADE

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E*TRADE Financial Corporation
Type	Public (NASDAQ: ETFC)
Founded	Palo Alto, California (1982)
Headquarters	New York City, USA
Key people	R. Jarrett Lilien, Acting-CEO, President, and Director Donald H. Layton, Chairman Robert J. Simmons, CFO
Industry	Financial Services
Products	Trading & Investing, Retirement & Planning, Banking & Credit Cards, Mortgage & Home Equity
Revenue	Image:Green Arrow Up Darker.svg US$2.537 Billion (2005)
Net income	Image:Green Arrow Up Darker.svg US$628.9 Million (2006)
Employees	4705 (2006)
Slogan	Be Etraordinary* (pronounced as "extraordinary")
Website	www.etrade.com

E*TRADE Financial Corporation (NASDAQ: ETFC) is a financial services company based in New York, NY, United States. It is a holding company, the major business of which is an online discount stock brokerage service for self-directed investors. As a discount brokerage, it charges a smaller fee on each trade than a full-service broker. Investors can buy and sell securities such as stocks, bonds, options, mutual funds, and exchange-traded funds on E*TRADE's website, http://www.etrade.com. The company also offers banking and lending products such as checking and savings accounts, money market accounts, certificates of deposit, credit cards, and mortgages.

Image:Etrade financial center market st san francisco.jpg

E*TRADE Financial Center, San Francisco

1 History
2 Divestiture of subprime portfolio
3 External links
4 Notes

[edit] 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), making TradePlus and its E*TRADE subsidiary the fastest-growing private company in the country. The company eventually underwent reorganization and emerged as the E*TRADE Group, with E*TRADE Securities as its principal subsidiary. ^[1]

In August, 1996 it went public with Silicon Valley heavyweight 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 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. ^[2] E*TRADE's stock is traded on the NASDAQ under the ticker ETFC ^[3].

E*TRADE is regulated and licensed by FINRA.

[edit] Divestiture of subprime portfolio

On November 29, 2007, Etrade announced a deal with the Citadel Investment Group in which Citidel purchased all of Etrade's securitized subprime mortgage investments for $800,000 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. Also part of the deal Citidel loaned Etrade $1,600,000 and got 84,687,686 shares of Etrade stock (which diluted the stock). 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.

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

Prior to the Citidel deal, Etrade'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. During the height of the negative subprime news on Wall Street, one of Etrade's competitors released an announcement in which they said Etrade had a 30% chance of going bankrupt. The announcement caused panic selling and because Etrade is a well-known name, many unsophisticated investors sold into the panic. Another Etrade competitor later announced a sell recommendation on the stock (after it had already dropped).

After the sell-off and the Citidel deal, Etrade'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 Etrade had lost between 1-2% of their deposits. Moody's reported that Etrade saw a "17% drop in customer cash and deposits in the month of November". [1]