E TRADE FINANCIAL CORP - FORM 8-K - EX-99.1 - INVESTOR PRESENTATION

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8-K - FORM 8-K - E TRADE FINANCIAL CORP	d408953d8k.htm

E*TRADE Financial Corporation

Barclays Global Financial Services Conference

Frank J. Petrilli, Chairman and Interim CEO

September 11, 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.

E*TRADE’s Mission

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 manage and de-risk the Bank

•

Mitigate

credit

losses

legacy

loan

portfolio

and

enhance

risk

profile

•

Build out enterprise risk management function

Strengthen overall financial and franchise position

•

Improve capital ratios through de-risking and de-leveraging

•

Focus on ultimately deploying excess Bank capital to parent to pay off high cost debt

•

Increase focus on cost reductions and efficiencies

Business Strategy

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Strengthen overall financial and franchise position

Ongoing improvement in net income

$627

($1,442)

($809)

($525)

($28)

$157

$102

($1,500)

($1,000)

($500)

$500

$1,000

FY 2006

FY 2007

FY 2008

FY 2009

FY 2010

FY 2011

1H 2012

(1)

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Strengthen overall financial and franchise 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

$1.0B

Long-term

impact to

current

strategy

(1)

$0.2B

($ M)

Last 4 quarters

Revenue

Provision

Servicing

FDIC expenses

Other

Expenses, total

Operating income

Interest & other

Pre-tax income

$1,924

($361)

($67)

($116)

($1,050)

($1,233)

$330

($180)

$150

Long-term impact

to current strategy

$2,108

($58)

($1,050)

($1,108)

$1,000

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

Should reduce to $0 as excess Bank capital is

deployed to parent to pay off high cost debt

($3.5)

($2.5)

($1.5)

($0.5)

$0.5

$1.5

2006

2007

2008

2009

2010

2011

Last 4

quarters

Earnings before interest, taxes and credit costs

Provision / credit costs

Interest & other expense

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Strengthen overall financial and franchise position

Focus on increasing shareholder value through a more efficient capital structure

Capital ratios as of

6/30/12

Bank

Parent

Well-

capitalized

threshold

Total capital to

risk-weighted assets

(2)

18.0%

13.4%

10.0%

Tier 1 capital to

risk-weighted assets

(2)

16.7%

12.2%

6.0%

Tier 1 common

(3)

16.7%

10.2%

7.0%

Tier 1 leverage

(2)

7.9%

5.7%

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

Net interest spread on reduced balances equates to 125-150 bps

De-leveraging options include:

Move non-core deposits off balance sheet

Move portion of sweep deposits off balance sheet

Reduce wholesale funding

Reducing leverage is integral to ultimately deploying excess Bank capital to parent to pay off

high-cost debt; and to gaining nearer-term flexibility to refinance high-cost debt

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

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

2Q 2008

2Q 2009

2Q 2010

2Q 2011

Q2 2012

($B)

Tier 1 capital

Risk-based capital

Parent debt

sweep

deposits

$20.5

customer

payables

$5.1

wholesale

funding

$7.5

other

deposits

$7.4

other

$2.1

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Strengthen overall financial and franchise position

Deferred tax asset: Embedded value realized with ongoing profitability

Consolidated DTA of $1.5B

($0.4B at parent; $1.1B at Bank)

Ability to include more in regulatory capital with ongoing

profitability

Source of corporate cash 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

Lower

Attrition

Increase

Net New Assets /

Share of Wallet

Grow

High Quality

Account Base

Increase

Asset-Based

and Commission-

Based Revenue

Key initiatives to drive success

•

Create leading online broker

experience:

•

E*TRADE.com

•

E*TRADE 360

•

E*TRADE Mobile

•

Education & research

•

E*TRADE Community

•

Focus on customer dissatisfiers

•

Continuous process improvement

•

Deliver best-in-class trading

experience:

•

E*TRADE.com

•

E*TRADE Pro

•

E*TRADE Mobile

•

Expand product engagement

through:

•

Platform enhancements

•

Idea generating tools

•

Education for all traders on

products, platforms, strategies and

risk management

•

Expand brand as a trusted

retirement and investing

provider

•

Deliver retirement advice &

planning:

•

Financial Consultants

•

Online planning tools

•

Managed Products

•

Increase awareness of needs-

based investing solutions:

•

Mutual funds

•

Fixed income

•

ETFs

•

Deepen relationships with

high-potential customers

Improve

customer experience

Grow retirement

& investing

Enhance retail

trading offering

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

Net new brokerage

accounts

Net new brokerage

assets

(5)

Annualized brokerage

account attrition

(4)

Average brokerage

assets per account

(6)

Annualized brokerage

account attrition

(4)

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

9.9%

10.7%

10.5%

9.5%

8.7%

8.4%

12%

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

$3.9

$1.5

$2.6

$1.7

$4.0

$2.2

$0.0

$1.3

$2.5

$3.8

$5.0

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

$57

$56

$49

$52

$60

$57

$20

$40

$60

$80

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

2010: 12.2%

2011: 10.3%

1H 2012:

8.6%

2010: 54k

2011: 99k

1H 2012: 92k

2010: $8.1B

2011: $9.7B

1H 2012: $6.2B

2010: $49k

2011: $54k

1H 2012: $58k

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

Average cost:

2010: 12bps

2011: 11bps

1H 2012: 12bps

2010: 151k

2011: 157k

1H 2012: 148k

Average yield:

2010: 442bps

2011: 413bps

1H 2012: 396bps

Retirement assets

177

148

165

140

157

139

100

150

200

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

$5.7

$5.2

$4.8

$5.3

$5.8

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Customer margin

receivables

$26

$28

$31

$29

$10

$30

$40

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Brokerage-related

cash

$31

$28

$30

$33

$10

$30

$40

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

$20

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Enhance position in retirement & investing

Retooled marketing focused on retirement & investing to evolve the brand

NEW

Public Site

NEW

TV Commercials

NEW

Print & Online

Grew Financial Consultant headcount by over 40% since year-end 2010

We estimate

have

12%

our

customers’

investible

assets

(36%

for

active

traders;

10%

for

investors)

(7)

Have identified segments best served by proactive engagement with Financial Consultants

—

One year post assignment seeing significant improvement in engagement and retention

Financial Consultant network highlights

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Chartered Retirement

Kiplinger’s 2011 “Best Of”

Retirement Calculator

Retirement education

8,100+ mutual funds

4,600 no-load/6,900 no

transaction fee

90+ commission-free

50,000+ bonds

Unified Managed Accounts

Managed Investment

Portfolios

Financial Consultants

Services

Products

†

Integrated into advertising

Headcount of 270

Increased asset penetration

1year post assignment

Complementary retirement

and portfolio consultations

Enhance position in retirement & investing

†

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

794k retirement accounts

28% of brokerage accounts

$954 million in managed

investment accounts

(2.5 years post inception)

$32.7 billion in retirement

assets

20% of $164 billion of brokerage-

related assets

Accounts &

assets

Integrated retirement & investing offering to drive accounts & assets

Every ETF sold

Planning

Counselors

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 of external customers, comprising 40+ external

clients

(32% y/y growth), and accounting for approximately

half of 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; $21B in vested and $44B in unvested

options

Proceeds retention of 35%+ 3 months post exercise,

and 15%+ 12 months post exercise

Capitalize on value of complementary brokerage businesses

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 manage and de-risk the Bank

Improvement in asset composition…

…Funding mix also continues to improve

•

Legacy loan portfolio now accounts for less than 30% of

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

peak in 1Q 2008

•

Loan portfolio balances are down 62% from peak in 3Q

2007

•

Risk weighted assets are down 39% 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 65% from its

peak in 3Q 2007

•

Balance sheet strategy going forward is liability-driven, by

brokerage cash

2007

2008

2009

2010

2011

2012

Brokerage

-related deposits and other

Wholesale funding

2007

2008

2009

2010

2011

2012

Agency securities, cash, and other

Legacy loans

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Continue to manage and de-risk the Bank

Mitigate credit losses on legacy loan portfolio

($ B)

Loan balance

9/30/07

(8)

Paydowns

(9)

Charge-offs

Loan balance

6/30/12

(8)

Average age

1-4 Family loans

$17

($10)

($1)

6.2 yrs

Home equity

$12

($4)

($3)

6.4 yrs

Consumer

($2)

($0)

8.6 yrs

TOTAL

$32

($16)

($4)

$12

Delinquencies

Loans 30-89 days past due

Provision for loan losses

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Continue to manage and de-risk the Bank

Mitigate credit losses on legacy loan portfolio

•

Increased the qualitative reserve in Q4

2011 in anticipation of losses related to a

review of modification policies and

practices pursuant to regulatory transition

•

Review was completed in Q1 2012: Certain

modified loans were charged-off against

previously established SVA and the

qualitative reserve.

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

2Q 12

Components of allowance for loan losses

Coverage of non-modified loans

Coverage of modified loans

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

General reserve

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

Qualitative

reserve

Accounts

for

factors

not

directly

considered

our

quantitative

model

Specific Valuation Allowance

= Expected losses over remaining life of modified loans

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Continue to manage and de-risk the Bank

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 slightly

above 240bps in 2012

2.00%

2.20%

2.40%

2.60%

2.80%

3.00%

$42.4

$41.0

$39.7

$41.5

$42.7

$42.9

$42.7

$42.6

$44.9

$44.8

2.96%

2.89%

2.95%

2.88%

2.84%

2.89%

2.81%

2.66%

2.49%

2.44%

1Q 10

2Q 10

3Q 10

4Q 10

1Q 11

2Q 11

3Q 11

4Q 11

1Q 12

2Q 12

Average interest earning assets & net interest spread

($2)

2010

2011

2012

Growth in deposits

Customer deposits driving balance sheet size

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Continue to manage and de-risk the Bank

Visibility into future drivers of net interest spread

1-4 family mortgages

Home equity lines of credit

•

Loan portfolio continues to run off at approximately 20%

per year

•

Nearly 70% 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 2015, and balances continue to decline

•

Hedges on wholesale funding channels require us to

continue issuing short-term debt for next several years

Average cost 3-

Wholesale funding obligations will expire over

the next ten years

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

•

Prolonged low interest rate environment

•

Home prices

•

Weak consumer / investor confidence

•

Heightened regulatory sensitivity

Environmental

Challenges

•

Mitigate credit losses on legacy loan portfolio

•

Improve capital structure

•

Complete regulatory transition to OCC & Fed

•

Build out enterprise risk management function

E*TRADE

Challenges

•

Accelerate growth of customer franchise

•

Expand brand as a trusted retirement and investing

provider

•

Cost reduction / efficiency gains

E*TRADE

Opportunities

Challenges and opportunities

This presentation contains confidential information and may not be disclosed without

E*TRADE FINANCIAL Corporation’s written permission.

Appendix

FY 2009

Net loss

(1,297,762)

Add back: non-cash charge on Debt Exchange

772,908

Adjusted net loss

(524,854)

The fund's prospectus contains its investment objectives, risks, charges, expenses and other important information and should be read and considered carefully before investing. For a current

prospectus, visit www.etrade.com

Explanation of Non-GAAP Measures and Certain Metrics

Management believes that Bank earnings before taxes and before credit losses and E*TRADE Financial ratios are appropriate measures for evaluating the operating and liquidity performance of the

Company. Management believes that adjusting GAAP measures by excluding or including certain items from the related GAAP measures is helpful to investors and analysts who may wish to use

some or all of this information to analyze our current performance, prospects and valuation. Management uses non-GAAP information internally to evaluate our operating performance in

formulating our budget for future periods.

(1) Excludes impact of the debt exchange. In the third quarter of 2009, the Company exchanged $1.7 billion aggregate principal amount of interest-bearing corporate debt for an equal principal

amount of newly-issued non-interest-bearing convertible debentures. This Debt Exchange resulted in a non-cash charge of $723 million. The following table provides a reconciliation of GAAP net

loss to non-GAAP net loss for FY2009:

(2) The parent total capital to risk-weighted assets, Tier 1 capital to risk-weighted assets and Tier 1 leverage capital ratios are based on the Federal Reserve regulatory minimum well-capitalized

threshold, although the parent is not currently subject to capital requirements. See the Company’s Form 10-Q filed August 3, 2012 for a reconciliation of those non-GAAP measures to the

comparable GAAP measures.

(3) The parent Tier 1 common ratio is Tier 1 capital less elements of Tier 1 capital that are not in the form of common equity, such as trust preferred securities, divided by total risk-weighted assets for

the holding company. The holding company is not yet held to the capital requirements; as such, the 7.0% well-capitalized threshold is not based on regulatory guidance. See the Company’s Form

10-Q filed August 3, 2012 for a reconciliation of the non-GAAP measure of Tier 1 common ratio to the comparable GAAP measure.

(a) Attriting brokerage accounts: Gross new brokerage accounts, less net new brokerage accounts.

(5) The net new brokerage assets metrics treat asset flows between E*TRADE entities in the same manner as unrelated third party accounts.

(6) Average brokerage assets per account is calculated as the sum of security holdings and brokerage related cash divided by end of period brokerage accounts.

(7) Based on data as of 6/30/12.

(8) Represents unpaid principal balances.

(9) Net paydowns includes paydowns on loans as well as limited origination activity, home equity advances, repurchase activity, limited sale and securitization activities and transfers to real estate

owned assets.

(10) The total expected losses on TDRs includes both the previously recorded charge-offs and the specific valuation allowance.

(11) Excludes $0 balance home equity lines of credit.

annualized basis (where it appears quarterly).

(4) The attrition rate is calculated by dividing attriting brokerage accounts, by total brokerage accounts, for the previous period end. This measure is presented annually and on an

(a)

E TRADE FINANCIAL CORP - FORM 8-K - EX-99.1 - INVESTOR PRESENTATION - September 11, 2012

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