E*TRADE wants you to use its services for nearly E*VERYTHING financial. A top online brokerage, the company has more than 2.5 million retail account holders who can trade stock over the Internet (the majority of transactions) and by phone. E*TRADE also offers mutual funds, options, fixed income products, exchange-traded funds, and portfolio management services. For corporate clients, the company performs market making, trade clearing, and employee stock option plan administration services. Subsidiary E*TRADE Bank offers deposits, savings, and credit cards online, as well as at some 30 financial centers in major US cities; customers can transfer funds between their banking and brokerage accounts in real time.
E*TRADE's decision to move more strongly into banking -- it aimed to triple its loan business -- could not have come at a worse time, as the credit crisis struck down banks and lenders around the world. The company suffered considerable losses tied to its home loan portfolio and investments in risky asset-backed securities. E*TRADE was given some needed relief in 2007 when an affiliate of hedge fund Citadel Investment Group provided it with a $2.5 billion cash pick-me-up. Citadel acquired the firm's securities portfolio at a discount and reshuffled its senior management team. The company is E*TRADE's second-largest shareholder, with a nearly 10% stake, plus board representation through Citadel CEO Ken Griffin; Citadel slightly reduced its stake in 2012. (Now the largest shareholder by a slim margin, Fidelity also owns nearly 10% of the E*TRADE.)
The company refocused its efforts on its retail customer business and shed noncore operations. It has been hoarding reserves to counter loan losses and exited both its wholesale lending and direct lending operations. The company also shuttered its institutional brokerage business.
E*TRADE also decided to exit its international channels focusing on local trades and instead concentrate on providing cross-border trades of US securities. In 2009 and 2010 the company sold its local German, Nordic, and UK operations. E*TRADE currently maintains about a dozen retail brokerage websites in Europe, the Middle East, and the Pacific Rim, in addition to the US.
All of the changes were not enough. In 2011, E*TRADE started looking to sell itself after its largest stockholder, Citadel, urged the company to explore its alternatives. Later that year, it called off plans to find a buyer, instead preferring to turn itself around. Its strategy to do so revolves around focusing on its brokerage business while continuing to mitigate credit losses in its loan portfolio.
While revenues slipped some 2% (to $2.4 billion) in 2011, the company reported positive net incomes for the first time in five years. Part of the earnings decrease was attributed to the company's dropping its trading prices as well as the elimination of all account activity fees, which took place in 2010. The changes were part of the company's efforts to stay competitive as other brokerages drop their prices and to provide a more simple and transparent operating model for its customers. Additionally, E*TRADE sold some $1 billion in savings accounts to Discover Financial Services in 2010, which boosted its revenues that year but comparatively impacted its earnings negatively in 2011. However, the firm has been slowly cutting its loan losses as it rids itself of its troubled portfolio, which helped it end 2011 in the black.
The company has been building up its financial consultant team, with a focus on its most most lucrative clients. Through consultations with those customers, E*TRADE has been able to improve their returns and boost its own brokerage accounts. – less