| Type | Public (NASDAQ: ETFC) S&P 500 Component |
|---|---|
| Industry | Financial Services |
| Founded | Palo Alto, California (1982) |
| Headquarters | New York City, New York U.S. |
| Key people | Steven Freiberg, CEO Matthew Audette, CFO[1] |
| Products | Trading & investing, banking & credit cards, retirement & planning |
| Revenue | US$2.22 billion (FY 2009)[2] |
| Operating income | US$-525 million (FY 2009)[2] |
| Net income | US$-1.30 billion (FY 2009)[2] |
| Total assets | US$47.4 billion (FY 2009)[3] |
| Total equity | US$3.75 billion (FY 2009)[3] |
| Employees | 3,249 (2009) |
| Website | ETrade.com |
E-Trade Financial Corporation (often styled E*TRADE) (NASDAQ: ETFC) is a financial services company based in New York City, United States. 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 via E-Trade Mobile Pro. 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 brokerage business is regulated and licensed by the Financial Industry Regulatory Authority (FINRA). E-Trade also has a wholly owned subsidiary E-Trade Bank.
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In 1982, William A. Porter and Bernard A. Newcomb founded TradePlus in Palo Alto, California. In 1991, Porter founded a new company, E-Trade Securities, Inc.,[4] 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.[5]
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 2001, an online brokerage firm known as Web Street Securities was assumed by E-Trade. Web Street had a strong presence in cities throughout the United States with offices in Beverly Hills, Boston, Denver and San Francisco. The sale was heard to be around $50 million in stock.
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.[6][7] In 2005, E-Trade made an unsolicited 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.[8]
In August 2005, E-Trade Financial acquired Harrisdirect, formerly a discount brokerage service of Bank of Montreal. Two months later, E-Trade acquired Brown & Company (aka BrownCo), formerly a discount brokerage service of J.P. Morgan for $1.6 billion in cash.[9]
E-Trade previously operated in 13 nations, however they revoked the brand name license from what was formerly known as SBI E-Trade Securities in Japan, following a disagreement with E-Trade's United States headquarters over SBI pursuing unauthorized international expansion outside of Japan. Thus, the E-Trade brand has disappeared from Japan.
On November 29, 2007, E-Trade announced a deal with the Citadel LLC in which Citadel purchased E-Trade's securitized subprime mortgage investments for $800 million, 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 reduction in 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, on or about November 12, 2007, 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.[10]
After the sell-off and the Citadel 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. Robert Druskin, a former chief operating officer of Citigroup Inc. was named interim CEO and chairman when Layton retired at the end of 2009 while E-Trade continued to search for a permanent CEO. On April 1, Steven Freiberg former co-CEO of Citigroup's global consumer group and former head of the bank's credit card unit, took the reins as E-Trade's new CEO while Druskin continues in his role as board chairman.[11]
On the day of Steven Freiberg's CEO appointment, the company announced it will seek the approval of its stockholders for a 1-for-10 reverse stock split and a corresponding decrease to the company’s authorized shares of common stock to a total of 400,000,000 shares at the Company’s 2010 Annual Meeting to be held on May 13, 2010.[12]
In July 2008, E-Trade sold its Canadian division to Scotiabank for CAD$444 million, as part of a program of selling off non-core assets.[13]
E-Trade premiered commercials during Super Bowl XLII featuring a talking baby in front of a web cam discussing investing and finance in an adult voice. The "insufferable brat"[14] returned the next year for Super Bowl XLIII, along with a Facebook page, updates on Twitter and videos on YouTube. [15] The E-Trade baby is voiced by comedian Pete Holmes [16]
On Monday, March 8, 2010 actress Lindsay Lohan filed a lawsuit against E-Trade alleging that a character named "Lindsay" appearing in a television advertisement for the company, described pejoratively as a "milk-aholic", invoked her "'likeness, name, characterization, and personality' without permission, violating her right of privacy." The lawsuit seeks $50 million in compensatory damages and $50 million in exemplary damages, and demands that E-Trade cease and desist use of the ad.
Lohan believes that her name invokes familiar "single-name" awareness such as Madonna and Oprah, although a spokesman for Grey Group, the company responsible for designing the ad, stated that the character was named after a member of its E-Trade account team.[17][18] E-Trade's stock price did not noticeably suffer when news of the lawsuit became public, suggesting that the market currently believes that Lohan's suit will not succeed.[19] In July 2010, E-Trade was granted a change of venue from Nassau County, where Lohan filed the suit, to Manhattan.[20] According to Right Celebrity as of September 22, the lawsuit has come to an undisclosed settlement.[21]