E*TRADE FINANCIAL CORP.

ByLouise Philbrick

Keith GrantDavid Guerra

Overview

Current Condition Vision and Mission External Factors

CPM EFE

Internal Factors IFE

Analysis Key Ratios SWOT Matrix Space Matrix BCG IE Matrix GSM

Possible Strategies Recommendations Evaluation

E*TRADE Overview

E*trade Financial Corp., is a diversified financial services holding company, by and through its subsidiaries, is a global provider of financial services to retail, corporate and institutional customers. Building on our foundation in online investing, we have expanded to provide retail customers with an integrated and personalized suite of investing, banking, lending, planning and advice services primarily through online channels, under our new brand, "E*TRADE FINANCIAL.”

History of E*trade

1982, founded as a service bureau by inventor and physicist, Bill Porter

1992, E*Trades Securities Inc. was born to start online investment services

1996, E*Trade moved public 1997 Porter appointed Christos Cotsakos as CEO 2000, E*Trade purchased Telebanc Financial and to

become known as E*Trade Financial 2001 E*Trade acquired Online Mortgage originator

LoansDirect, and is now known as E*Trade Mortgage

What E*Trade is today

E*Trade is active in Germany, Australia, Canada, New Zealand, Denmark, Hong Kong, Japan, Korea, Sweden, and the United Kingdom

E*Trade is in a Process of searching for a new advertising agency to replace the current Goodby, Silverstein & Partners

E*trade owns and operates over 15,200 Automated Teller Machines

E*Trade is becoming a complete full service financial support and execution portal for individual investors

Stock Price Performance

Important E*Trade facts

2003 E*Trade’s revenues rose to $2008 million and net income rose to $203 million despite a reduction in the number of employees by only 5 from the previous year

E*Trade’s major competitors are Schwab, Ameritrade, JB Oxford Holdings, Financial Institutions, and AB Watley Group

E*Trade is trying to regain investor confidence after former CEO Christos Cotsakos received a 2001 pay package valued at $80 million even as the company’s share price plummeted

E*Trade discontinued advertising in the Super Bowl in 2001

E*Trade’s goals and objectives

To be the global leader in online financial and investment services

To commit to helping our customers of all ages achieve their financial goals by using state-of-the-art technology

Provide a continuous improvement environment for our customers, employees, and stockholders

Provide career opportunities for employees and profitable growth for shareholders

Operate using the highest ethical ideals Strive to improve the quality of life for citizens within the

communities and countries we serve

Vision statement (Proposed)

E*Trade’s vision is “to empower self-directed investors to make informed investment decisions and to take control of their financial future with anytime, anywhere access to the world’s major investment markets”

Mission Statement

To create long term shareholder value through superior financial performance driven by the delivery of a diversified range of innovative, customer-focused financial products and services and supported by an operating culture based on the highest levels of teamwork, efficiency and integrity.

Source: www.etrade.com

Competitive Profile Matrix

Weight Rating Score Rating Score Rating Score0.10 3 0.30 3 0.30 4 0.40

Market Penetration 0.10 3 0.30 4 0.40 3 0.30Customer Service 0.05 3 0.15 4 0.20 2 0.10Brand Awareness 0.10 3 0.30 4 0.40 2 0.20User friendly website 0.10 4 0.40 4 0.40 4 0.40Revenue Growth 0.05 3 0.15 4 0.20 4 0.20Financial Condition 0.05 3 0.15 4 0.20 4 0.20Customer Loyalty 0.05 2 0.10 4 0.20 4 0.20Market Share 0.15 2 0.30 4 0.60 2 0.30Product Quality 0.05 3 0.15 4 0.20 3 0.15Global Expansion 0.05 3 0.15 3 0.15 3 0.15Price Competitiveness 0.15 1 0.15 2 0.30 4 0.60

1.00 2.60 3.55 3.20Totals

Critical Success Factors

E*trade

Competitive Profile Matrix (CPM)Charles Schwab

Ameritrade

Advertising

External AuditOpportunities Threats

77% increase in transactions processed in South African banks

Charles Schwab has 4million online accounts while E*trade has 2.86m

Possible acquisition of TD Waterhouse Charles Schwab or Ameritrade may purchase TD Waterhouse

“Highly satisfied” online banking customers are more likely to recommend their bank’s website

Charles Schwab customers are more affluent than E*Trade’s customers

Increase in online stock market trading Passing new privacy protection laws

Number of individuals aged fifty and over is increasing

Fear of computer hackers

Interest rates are relatively low Many foreign economies are still unstable

Customers are willing to pay for good service if it limits levels of inconvenience

Competitors receiving more honors

Global increase in internet accessibility Lower competitor fees

Increase in the expected use of wireless internet devices in the U.S

Growing concern for computer viruses

The unification of the European economy Competitors have more physical locations

External Factors Evaluation MatrixOpportunities Weight Rating Weighted

Score

77% increase in transactions processed in South African banks 0.02 2 0.04

Possible acquisition of TD Waterhouse 0.04 3 0.12

“Highly satisfied” online banking customers are more likely to recommend their bank’s website

0.05 2 0.10

Increase in online stock market trading 0.05 3 0.15

Number of individuals aged fifty and over is increasing 0.01 3 0.03

Number of individuals aged fifty and over is increasing 0.06 2 0.12

Customers are willing to pay for good service if it limits levels of inconvenience

0.06 2 0.12

Global increase in internet accessibility 0.10 3 0.30

Increase in the expected use of wireless internet devices in the U.S

0.08 3 0.24

The unification of the European economy 0.05 2 0.10

EFE Matrix ConcludedThreats Weight Rating Weighted

Score

Charles Schwab has 4million online accounts while E*trade has 2.86m

0.06 3 0.18

Charles Schwab or Ameritrade may purchase TD Waterhouse 0.04 3 0.12

Charles Schwab customers are more affluent than E*Trade’s customers

0.05 2 0.10

Passing new privacy protection laws 0.01 2 0.02

Fear of computer hackers 0.02 2 0.04

Many foreign economies are still unstable 0.04 3 0.12

Competitors receiving more honors 0.04 2 0.08

Lower competitor fees 0.12 1 0.12

Growing concern for computer viruses 0.04 2 0.08

Competitors have more physical locations 0.06 1 0.06

Totals 1.00 2.24

Internal Audit

Strengths Weaknesses

E*Trade provides 24/7 services Total debt to equity ratio is 0.36 while the industry’s is 0.9

E*Trade has a customer base in 119 countries Decrease in active retail brokerage accounts

Second largest ATM network in the U.S. Totaling 15,000

Limited number of branches for customers to go to for assistance

“Power E” sales promotion. Offers flat commission of $9.99 per trade for trades 27 or more times per quarter

E*Trade has experienced computer system failures

Increase in EPS from ongoing operations from $0.45 to $0.59

97% of net revenues come from the U.S., Europe and South East Asia

Introduction of enhanced online banking platform that is easier-to-use

ROA is considerably lower than the industry average

Increase in new banking accounts Lack of confidence from shareholders due to pay off

Various services to investors; such as a research database and personal assistance

Weak profitability ratios

“Total Protection Guarantee” promises 100% fraud coverage and privacy protection

Charges as much as 300% more for stock transactions than some competitors

Members of the board are all independent from the company

Charges many miscellaneous fees

Internal Factors Evaluation Matrix

Strengths Weight Rating Weighted Score

E*Trade provides 24/7 services 0.08 3 0.24

E*Trade has a customer base in 119 countries 0.06 3 0.18

Second largest ATM network in the U.S. Totaling 15,000 0.03 3 0.09

Power E” sales promotion. Offers flat commission of $9.99 per trade for trades 27 or more times per quarter

0.05 4 0.20

Increase in EPS from ongoing operations from $0.45 to $0.59 0.04 4 0.16

Introduction of enhanced online banking platform that is easier-to-use

0.03 3 0.09

Increase in new banking accounts 0.06 4 0.24

Various services to investors; such as a research database and personal assistance

0.05 4 0.20

“Total Protection Guarantee” promises 100% fraud coverage and privacy protection

0.03 3 0.09

Members of the board are all independent from the company 0.02 3 0.06

IFE Matrix Concluded

Weaknesses Weight Rating Weighted Score

Total debt to equity ratio is 0.36 while the industry’s is 0.9 0.01 2 0.02

Decrease in active retail brokerage accounts 0.12 1 0.12

Limited number of branches for customers to go to for assistance 0.05 1 0.05

E*Trade has experienced computer system failures 0.03 2 0.06

97% of net revenues come from the U.S., Europe and South East Asia

0.05 1 0.05

ROA is considerably lower than the industry average 0.03 2 0.06

Lack of confidence from shareholders due to pay off 0.02 2 0.04

Weak profitability ratios 0.04 2 0.08

Charges as much as 300% more for stock transactions than some competitors

0.12 1 0.12

Charges many miscellaneous fees 0.08 1 0.08

Totals 1.00 2.23

Key Financial Ratios

Growth Rate % Company Industry Sector S&P 500

Sales (MRQ) vs. QTR 1 year ago N/A 1.25 2.30 2.04

Sales (TTM) vs. TTM 1 Yr Ago 0.99 1.85 1.48

Sales - 5 Yr Growth Rate N/A 17.04 13.09 6.48

EPS (MRQ) vs. Qtr 1 Yr Ago 16.36 24.92 26.78

EPS (TTM) vs. TTM 1 Yr Ago N/A 1.25 2.30 2.04

EPS - 5 Yr Growth Rate 0.99 1.85 1.48

Capital Spending - 5 Yr Growth Rate N/A 17.04 13.09 6.48

Financial Strength

Quick Ratio (MRQ) N/A N/A N/A 1.26

Current Ratio (MRQ) N/A N/A N/A 1.76

LT Debt to Equity (MRQ) 0.00 N/A N/A 0.68

Total Debt to Equity (MRQ) 0.36 N/A N/A 0.85

Interest Coverage (TTM) 4.51 N/A N/A 11.86

Key Ratios Concluded

Valuation Ratios Company Industry Sector S&P 500

P/E Ratio (TTM) 23.82 18.81 16.30 24.01

Beta 3.04 1.69 0.83 1.00

Price to Tangible Book (MRQ) 3.28 3.94 3.82 7.56

Price to Free Cash Flow (TTM) 7.41 36.78 15.35 28.97

Profitability Ratios

Gross Margin (TTM) 43.09 N/A N/A 47.32

Gross Margin - 5 Yr Avg. 38.88 N/A N/A 47.01

EBITD Margin (TTM) 11.87 N/A N/A 20.79

EBITD - 5 Yr Avg. 3.92 N/A N/A 20.82

Operating Margin (TTM) 10.23 20.49 38.87 20.33

Operating Margin - 5 Yr Avg. 2.37 16.50 31.04 18.35

Pre-tax Margin- 5 yr Avg. 3.77 16.29 25.10 17.54

Net Profit Margin 1.02 11.04 16.97 11.59

Effective tax rate 55.23 34.22 32.30 34.20

S.W.O.T Matrix

SO Strategies WO StrategiesAdvertising campaign that promotes our enhanced online banking platform both domestically and globally(S6, O3)

Purchase TD Waterhouse from Toronto-Dominion Bank(W2, W3, W5, O2)

Advertise “Power E” sales promotion to encourage more stock transactions

Market and offer banking and brokerage services to Africa and other less developed countries(W5, O1)

Increase advertisement of 24 hour 7 days a week service along with strong ATM network

S.W.O.T Matrix Concluded

ST Strategies WT StrategiesIncrease marketing in the 119 countries that we currently have a customer base in(S2, T1)

Use debt financing to improve computer system to ensure that the website is secure and capable(W3, W4, T4, T5)

Advertise “Power E” sales promotion(S4, T4)

Market customers who have significant assets(W6, T3)

Space Matrix

6

5

4

3

2

1

-6 -5 -4 -3 -2 -1 1 2 3 4 5 6-1

-2

-3

-4

-5

-6

IS

ES

CA

FSConservative Aggressive

Defensive Competitive

Boston Consulting Group Matrix

Star Question Mark

Brokerage

Banking

Cash Cow Dog

27%

73%73%

27%

High Medium Low

1.0 .50 0

High

Medium

Low

+20

0

-20

IE Matrix

4.0 I II IIIHigh

3.0 IV V VI

TheEFETotal Medium E*TradeWeightedScores

Brokerage Bank

2.0 VII VIII IX

Low1.0

Strong Average Weak4.0 to 3.0 2.99 to 2.0 1.99 to 1.0

The Total IFE Weighted Scores

27%

73%

27%

73%

Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

Strong Competitive

Position

Slow Market Growth

Weak Competitive

Position

Quadrant III Quadrant IV

1. Concentric Diversification

2. Horizontal Diversification

3. Conglomerate Diversification

4. Joint Venture

Possible Strategies

Increase European Dominance Make attempts to acquire TD Waterhouse from

Toronto-Dominion Bank E*Trade should look into broadening their International

presence Use debt financing to improve computer system to

ensure that their website is secure and capable of handling numerous transactions

Increase customer base, by increasing awareness through stronger advertising

Decisions

Primary Increase presence and awareness in the European

Market

Possibilities Improve current E-Commerce infrastructure to be

certain that their website is not only secure, but capable of handling numerous transactions

Attempt to acquire another online brokerage firm Pay dividends in attempt to increase stock price to

raise capital

Implementation

Use revenues generated from European transactions to acquire at least 8,000 more ATM’s in the European Market to help expand its global business within the next 2-3 years

Use capital obtained from stock revenues to improve computer infrastructure

Acquire TD Waterhouse within 3 years Increase promotion of enhanced online banking

platform domestically and globally

2004 Financial Statistics

Net Income- $380.5 million Total Revenue- $2,083 million EPS- $0.92 Total Debt- $585.6 million EBIT- $1071 million Working Capital $1,021.2 million Common Shares outstanding- 366.59 million Operating Income- $1,111.3 million