E*Trade Financial Corporation (stylized E*TRADE) is a U.S.-based financial services company headquartered in New York. 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 such securities as stocks, bonds, options, mutual funds, and exchange-traded funds via electronic trading platforms or by phone. E*Trade Financial also provides investor-focused banking products, primarily sweep deposits and savings products, to retail investors.
E*Trade Financial operates directly and through numerous subsidiaries, many of which are overseen by governmental and self-regulatory organizations. The most significant subsidiaries are E*Trade Bank, E*Trade Securities LLC, and E*Trade Clearing LLC.
History
Foundation
In 1982 William A. Porter and Bernard A. Newcomb founded TradePlus in Palo Alto, California. In 1991 Porter and Newcomb 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.
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 a publicly traded online brokerage firm known as Web Street Securities was acquired 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 $50 million in stock and cash.
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. In 2005 E*Trade made an unsolicited offer for Ameritrade, currently the second largest U.S. discount broker. Ameritrade instead purchased TD Waterhouse, with TD Bank holding a 39% stake in the new entity.
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.
Subprime portfolio problems
On November 29, 2007, E*Trade announced a deal with 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 admitted 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 precipitously.
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 (an 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.
Post subprime reorganization
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 had been aggressively acting on the turnaround plan and the company had stabilized and was 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.
E*Trade previously operated in 13 countries; 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 disappeared from Japan. In July 2007 E*Trade's Australian subsidiary, which was separately operated company in which it held a 7% shareholding, was taken over by Australian ANZ Bank for $432 million.
In July 2008, E*Trade sold its Canadian division to Scotiabank for CAD$444 million, as part of a program to stabilize the company.
On April 1, 2010, 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 continued in his role as board chairman.
On the day of Freiberg's appointment as CEO the company announced it would 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 million shares at the company's 2010 Annual Meeting to be held on May 13, 2010.
On January 17, 2013, Paul T. Idzik was appointed CEO. Idzik had previously been Group Chief Executive of DTZ and also served ten years at Barclays bank.
Etrade Office Video
Advertising
E*Trade premiered commercials during Super Bowl XLVI featuring a talking baby in front of a web cam discussing investing and finance in an adult voice. The "insufferable brat" returned the next year for Super Bowl XLVII, along with a Facebook page, updates on Twitter, and videos on YouTube. It is a 30-second "Talking Baby" advertisement. The E*Trade Baby demonstrates a "Save It" initiative that focuses on just how much money is at stake in hidden 401(k) account fees and offers a better approach: "come to E*TRADE, and Save It".
The E*Trade baby was voiced by comedian Pete Holmes. The campaign was created by Grey Global Group, E*Trade's advertising agency of record since 2007. The first E*Trade baby was Gregory Michael Miller, taken in March 2001. E*Trade Baby was an integrated advertising campaign that appears online, television, print, and social media which included a series of Investing Solutions television commercials to highlight the wide range of investing, retirement, and trading solution available at E*Trade. In 2013 the company had over 64 million total views and over 26,000 subscribers on YouTube, more than 108,000 Facebook Baby and Corporate pages fans, and more than 17,000 Twitter followers. On March 21, 2014, the company announced the end of the E*Trade baby via a commercial which aired during March Madness.
Lawsuit
On 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 sought $50 million in compensatory damages and $50 million in exemplary damages, and demands that E*Trade cease and desist use of the ad.
Lohan stated 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. E*Trade's stock price did not noticeably suffer when news of the lawsuit became public, suggesting that the market believed that Lohan's suit would not succeed. In July 2010, E*Trade was granted a change of venue from Nassau County, where Lohan filed the suit, to Manhattan. According to Right Celebrity in September 22, 2010, the lawsuit came to an undisclosed settlement.
Industry awards and rankings
E*Trade earned five stars and finished first overall in the StockBrokers.com 2011 Online Broker Review. In 2012, they earned five stars and a second place finish along with several best in class finishes. For 2013, E*Trade remained in second place, while earning four stars, Best Smartphone App, and Best Client Dashboard. In 2014, E*Trade fell to fourth place; however, they received a four and a half star rating and won #1 Smartphone App as well as #1 Client Dashboard.
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