E TRADE FINANCIAL CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - FORM 8-K - E TRADE FINANCIAL CORP	d363786d8k.htm

E*TRADE Financial Corporation

Sandler O’Neill Global Exchange & Brokerage Conference

Steven Freiberg, CEO

June 7, 2012

This presentation contains confidential information and may not be disclosed without

E*TRADE Financial Corporation’s written permission.

Exhibit 99.1

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Notice to investors

Safe Harbor Statement

This presentation contains certain projections or other forward-looking statements

regarding future events or the future performance of the Company. Various factors,

including risks and uncertainties referred to in the 10Ks, 10Qs and other reports

E*TRADE Financial Corporation periodically files with the SEC, could cause our actual

results to differ materially from those indicated by our projections or other forward-

looking statements. This presentation also contains disclosure of non-GAAP financial

measures. A reconciliation of these financial measures to the most directly comparable

GAAP financial measures can be found on the investor relations site at

https://investor.etrade.com.

Forward-Looking Statements

The statements contained in this presentation that are forward looking are based on

current expectations that are subject to a number of uncertainties and risks, and actual

results may differ materially. Further information about these risks and uncertainties can

be found in the Company’s annual, quarterly and current reports on Form 10-K, Form 10-

Q and Form 8-K previously filed by E*TRADE Financial Corporation with the SEC

(including information under the caption “Risk Factors”). Any forward-looking statement

included in this release speaks only as of the date of this communication; the Company

disclaims any obligation to update any information.

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Improve market position in retail brokerage

•

Accelerate growth of the customer franchise

•

Continue to enhance the customer experience, improve satisfaction and retention

Capitalize on value of complementary brokerage businesses

•

Corporate services group

•

Market making operations

Enhance position in retirement & investing

•

Expand brand position for awareness and preference

•

Grow customer share of wallet

Continue to evolve bank franchise

•

Mitigate

credit

losses

legacy

loan

portfolio

and

enhance

risk

profile

•

Optimize value of customer deposits

Strengthen overall financial and franchise position

•

Strengthen balance sheet and income statement

•

Improve capital ratios through de-risking and de-leveraging

•

Focus on increasing shareholder value through a more efficient capital structure

•

Increase focus on expense reduction in light of challenging operating environment

Business Strategy

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

(1)

Strengthen overall financial position

Ongoing improvement in net income

Strengthen overall financial position

$0.9B

$(2.2)B

$(1.3)B

$(0.9)B

$0.0B

$0.2B

Pre-tax income:

Defined path to improved earnings through current strategy

Should reduce to $0 as capital is efficiently deployed

$1.0B

Long-term

impact to

current

strategy

(1)

$0.2B

Net Interest Spread should improve to 300bps

with normalized rate environment

Should reduce to $0 as legacy portfolio runs off

Should reduce by half as risk profile improves

($ M)

Last 4 quarters

Driver

Long-term impact

to current strategy

Revenue

$1,989

$2,123

Provision

($397)

Servicing

($70)

FDIC expenses

($113)

($57)

Other

($1,060)

Expenses, total

($1,243)

($1,117)

Operating income

$349

$1,006

Interest & other

($177)

Pre-tax income

$172

$1,006

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Strengthen overall financial position

Improve capital structure

Capital ratios as of 3/31/12

Bank

Parent

Well-

capitalized

threshold

Total capital to

risk-weighted assets

(2)

17.0%

12.6%

10.0%

Tier 1 capital to

risk-weighted assets

(2)

15.7%

11.4%

6.0%

Tier 1 common

(3)

15.7%

9.4%

7.0%

Tier 1 leverage

(2)

7.3%

5.5%

5.0%

Bank excess capital / Parent debt

Focused on de-leveraging to improving most constraining ratio: Tier 1 leverage

$930M

of 12.5%

notes

Non-core

liabilities

= 35% of

total

On average, each $1B reduction in balance sheet size equates to:

13-15 bps of improvement to consolidated Tier 1 leverage ratio

16-18 bps of improvement to Bank Tier 1 leverage ratio

De-leveraging options include:

Move non-core deposits off balance sheet

Move portion of sweep deposits off balance sheet

Eliminate wholesale funding (~$700M pre-tax charge)

Improving leverage ratio is an integral component of being able to

refinance high-cost debt at the parent

Refinancing the full $930M of 12.5% notes at first call date (12/1/12)

would result in a pre-tax loss of approximately $266 million:

~ $116 million for call premium

~ $150 million for original issue discount

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Strengthen overall financial position

Deferred tax asset

Consolidated DTA of $1.6B

($0.5B at parent; $1.1B at Bank)

Ability to include more in regulatory capital with ongoing

profitability

Potential source of corporate cash in future periods as

subsidiaries reimburse the parent for use of its DTA

Approximately 16 years to use; expect to utilize the full

amount

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Improve market position in retail brokerage

Net new brokerage accounts

Net new brokerage assets

(5)

Accelerate growth of the customer franchise

Annualized brokerage

account attrition

(4)

2010: 12.2%

2011: 10.3%

2010: 6.8%

2011: 6.7 %

2010: 54k

2011: 99k

2010: $8.1B

2011: $9.7B

Annualized net new

brokerage asset growth

(6)

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

DARTs

Improve market position in retail brokerage

Accelerate growth of the customer franchise

Avg brokerage assets per account

(7)

2010: $4.5B

2011: $5.4B

Average yield:

2010: 12bps

2011: 11bps

2010: 151k

2011: 157k

2010: $49k

2011: $54k

$57

$56

$49

$52

$60

$20

$40

$60

$80

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

177

148

165

140

157

100

150

200

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

$5.7

$5.2

$4.8

$5.3

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Customer margin receivables

$26

$28

$31

$10

$20

$30

$40

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Brokerage-related cash

Unique, customizable website experience

One-page investing dashboard

Dynamic content, streamlined experience,

better segmentation

Premiere, fully customizable active trader

platform

Powerful platform for account and

market access anytime, anywhere

Sophisticated options tools and analytics

E*TRADE FX platform

Integrated futures (Q3 12)

Upgraded Bond Resource Center

New educational resources –

video, live, web

Expanded Retirement Planning Center

Evolving products & platform

Connecting customers for education, investing ideas

Improve market position in retail brokerage

New Customer Site

New Public Site

E*TRADE Pro

E*TRADE Mobile

Options,

Futures & FX

Investing & planning

resources

E*TRADE

Community

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Market making business

Leveraging world class technologies and superior execution

capabilities

Leading market share in ADRs; growing market share in

National Market Securities

Growing

base

external

customers,

comprising

40+

external

clients

(33%

y/y

growth),

and

accounting

for

50%

market

making revenue

Corporate services group

Build on market leadership with 1,400+ corporate clients,

representing +20% of S&P 500

Foster strategically important channel for new brokerage

accounts, accounting for 25-30% of gross new accounts

1.1 million accounts; $25B in vested and $48B in unvested

options

Proceeds retention of 35%+ 3 months post exercise, and 15%+

12 months post exercise

Capitalize on value of complementary brokerage businesses

E*TRADE

#2 Player

#3 Player

6+ other providers

10%

$10

$15

$20

$25

$30

$24

$27

$25

$24

Principal transactions revenue ($M)

48%

20%

22%

Stock plan administration for

public companies

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Enhance position in retirement & investing

NEW

Public Site

NEW

TV Commercials

NEW

Print & Online

Financial consultant network highlights

Retooled marketing focused on retirement & investing to evolve the brand

Grew

Financial

Consultant

headcount

42%

since

year-end

2010

estimate

have

12%

our

customers’

wallet

(36%

for

active

traders;

10%

for

investors)

(8)

Have

identified

segments

best

served

proactive

engagement

with

FCs

—

One

year

post

assignment

seeing

significant

improvement

engagement

and

retention

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Integrated retirement & investing offering to drive accounts & assets

Chartered Retirement

Planning Counselors

Kiplinger’s 2011 “Best Of”

Retirement Calculator

Retirement education

8,100+ mutual funds

4,600 no-load/6,900 no

transaction fee

80+ commission -free

70,000+ bonds

Unified Managed Accounts

Managed Investment

Portfolios

Integrated into advertising

Grew headcount by 42%

Increased asset penetration

1year post assignment

Enhance position in retirement & investing

†

Unified Managed Accounts and Managed Investment Portfolios are offered by E*TRADE Capital Management

Financial Consultants

Services

Products

†

Products

†

$33.1 billion in retirement

assets

16% of $202 billion of customer assets

783k retirement accounts

28% of brokerage accounts

$0.8 billion in managed

investment accounts

(2 years post inception)

Accounts

assets

Every ETF sold

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Favorable mix shift in assets (lower risk) and liabilities (lower-cost)

Continue to evolve bank franchise

Improvement in asset composition…

…Funding mix also continues to improve

•

Legacy loan portfolio now accounts for less than one-third

of total interest earning assets, down from over 60% at the

peak in 1Q 2008

•

Loan portfolio balances are down 60% from peak in 3Q

2007

•

Risk weighted assets are down 38% from peak in 3Q 2007,

while absolute assets are down 24%

•

More expensive wholesale funding channel now accounts

for only 18% of interest-bearing liabilities, down from 38%

at its peak in 3Q 2007

•

Absolute size of wholesale funding is down 64% from its

peak in 3Q 2007

•

Balance sheet strategy going forward is liability-driven, by

brokerage cash

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Continue to evolve bank franchise

Mitigate credit losses on legacy loan portfolio

($ B)

Loan balance

9/30/07

(9)

Paydowns

(10)

Charge-offs

Loan balance

3/31/12

(9)

Average age

1-4 Family loans

$17

($10)

($1)

6.0 yrs

Home equity

$12

($4)

($3)

6.2 yrs

Consumer

($2)

($0)

8.4 yrs

TOTAL

$32

($16)

($4)

$12

$100

$200

$300

$400

$500

$600

$200

$400

$600

$800

$1,000

$1,200

Down 64%

from peak in

Q4 08

Down 86%

from peak in

3Q 08

Delinquencies

Loans 30-89 days past due

Provision for loan losses

Provision

Qualitative reserve

62% decline

Continue to evolve bank franchise

Mitigate credit losses on legacy loan portfolio

Coverage of non-modified loans

General reserve

= Expected losses over next 12 months for non-modified loans

Coverage of modified loans

Components of allowance for loan losses

•

Increased the qualitative reserve in Q4 in

anticipation of losses related to a review of

modification policies and practices

pursuant to regulatory transition

•

Review was completed in Q1: Certain

modified loans were charged-off against

previously established SVA and the

qualitative reserve.

Specific Valuation Allowance

= Expected losses over remaining life of modified loans

0.0

0.3

0.6

0.9

1.2

1Q 10

2Q 10

3Q 10

4Q 10

1Q 11

2Q 11

3Q 11

4Q 11

1Q 12

20%

40%

60%

80%

0.0

0.4

0.8

1.2

1.6

2010

2011

2012

20%

40%

60%

80%

0.0

0.4

0.8

1.2

1.6

2010

2011

2012

Modified loans

Prior charge-offs

Total expected losses on modified loans

(11)

90+ days past due non-modified loans

General reserve as a % of 90+ days past due non-modified loans

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Qualitative

reserve

Accounts

for

factors

not

directly

considered

our

quantitative

model

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Continue to evolve bank franchise

Optimize value of customer deposits

Growth in balance sheet during Q1 2012 was the largest

since 3Q 2007

Marginal spread on a balance sheet that is increasing in

size is lower given the Company’s philosophy to

maintain a moderate level of interest rate risk

Expectation for net interest spread to average

approximately 240bps in 2012

$42.4

$41.0

$39.7

$41.5

$42.7

$42.9

$42.7

$42.6

$44.9

2.96%

2.89%

2.95%

2.88%

2.84%

2.89%

2.81%

2.66%

1Q 10

2Q 10

3Q 10

4Q 10

1Q 11

2Q 11

3Q 11

4Q 11

1Q 12

($2)

2010

2011

2012

Growth in deposits

Customer deposits driving balance sheet size

2.49%

Average interest earning assets & net interest spread

3.00%

2.90%

2.80%

2.70%

2.60%

2.50%

2.40%

2.30%

2.20%

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Continue to evolve bank franchise

Visibility into future drivers of net interest spread

Average cost 3-4%

1-4 family mortgages

•83% of non-TDR portfolio is

adjustable for rate or amortization

•Over $2.5B has previously reset

and prior

Home equity lines of credit

•Avg loan size: $75K

(12)

•Avg est increase at conversion:

$150-200/mo. payment

and prior

•

Loan portfolio continues to run off at approximately

20% per year

•

Nearly 80% of 1-4 family loans resetting in the

remainder of 2012 are expected to reset to a lower

payment

•

Majority of home equity lines do not begin to amortize

until after 2014, and balances continue to decline

•

Hedges on wholesale funding channels require us to

continue issuing short-term debt for next several years

$0.5

$0.2

$0.3

$0.8

$1.2

20%

40%

60%

80%

100%

$0.0

$0.4

$0.8

$1.2

$1.6

$2.0

2011

2012

2013

2014

2015

2016

2017

payment resets by year

First-time resets

Prior first-time resets

% of total first-time resets

$0.3

$0.1

$0.2

$0.3

$0.9

$1.5

$0.5

20%

40%

60%

80%

100%

$0.0

$0.4

$0.8

$1.2

$1.6

$2.0

I/O to amortizing conversions

% of total conversions

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Wholesale funding obligations will expire over

the next ten years

2011

2012

2013

2014

2015

2016

2017

$1.9

$0.6

Prior conversions

Conversions

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Challenges

Prolonged low interest rate

environment

Further deterioration in home prices

Consumer confidence

Regulatory transition

Sustain accelerated growth in

brokerage

Success in retirement & investing

Reduce size of the balance sheet

Efficient use of capital

Business model

Environment

Appendix

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

E TRADE FINANCIAL CORP - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - June 7, 2012

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