E*TRADE FINANCIAL CORP.

By Louise Philbrick Keith Grant David Guerra

Overview

Current Condition Vision and Mission External Factors

Possible Strategies Recommendations Evaluation

CPM EFE

Internal Factors

IFE
Key Ratios SWOT Matrix Space Matrix BCG IE Matrix GSM

Analysis

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*Trades 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*Trades 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 companys share price plummeted E*Trade discontinued advertising in the Super Bowl in 2001

E*Trades 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*Trades vision is to empower selfdirected investors to make informed investment decisions and to take control of their financial future with anytime, anywhere access to the worlds 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

Competitive Profile Matrix (CPM) Charles Ameritrade Schwab Weight Rating Score Rating Score Rating Score E*trade
0.10 0.10 0.05 0.10 0.10 0.05 0.05 0.05 0.15 0.05 0.05 0.15 3 3 3 3 4 3 3 2 2 3 3 1 0.30 0.30 0.15 0.30 0.40 0.15 0.15 0.10 0.30 0.15 0.15 0.15 3 4 4 4 4 4 4 4 4 4 3 2 0.30 0.40 0.20 0.40 0.40 0.20 0.20 0.20 0.60 0.20 0.15 0.30 4 3 2 2 4 4 4 4 2 3 3 4 0.40 0.30 0.10 0.20 0.40 0.20 0.20 0.20 0.30 0.15 0.15 0.60

Critical Success Factors

Advertising Market Penetration Customer Service Brand Awareness User friendly website Revenue Growth Financial Condition Customer Loyalty Market Share Product Quality Global Expansion Price Competitiveness

Totals

1.00

2.60

3.55

3.20

External Audit
Opportunities 77% increase in transactions processed in South African banks Possible acquisition of TD Waterhouse Highly satisfied online banking customers are more likely to recommend their banks website Increase in online stock market trading Number of individuals aged fifty and over is increasing Interest rates are relatively low Customers are willing to pay for good service if it limits levels of inconvenience Global increase in internet accessibility Increase in the expected use of wireless internet devices in the U.S The unification of the European economy Threats Charles Schwab has 4million online accounts while E*trade has 2.86m Charles Schwab or Ameritrade may purchase TD Waterhouse Charles Schwab customers are more affluent than E*Trades customers Passing new privacy protection laws Fear of computer hackers Many foreign economies are still unstable Competitors receiving more honors Lower competitor fees Growing concern for computer viruses Competitors have more physical locations

External Factors Evaluation Matrix

Opportunities 77% increase in transactions processed in South African banks Possible acquisition of TD Waterhouse Highly satisfied online banking customers are more likely to recommend their banks website Increase in online stock market trading Number of individuals aged fifty and over is increasing Number of individuals aged fifty and over is increasing Customers are willing to pay for good service if it limits levels of inconvenience Global increase in internet accessibility Increase in the expected use of wireless internet devices in the U.S The unification of the European economy Weight 0.02 0.04 0.05 0.05 0.01 0.06 0.06 0.10 0.08 0.05 Rating 2 3 2 3 3 2 2 3 3 2 Weighted Score 0.04 0.12 0.10 0.15 0.03 0.12 0.12 0.30 0.24 0.10

EFE Matrix Concluded

Threats Charles Schwab has 4million online accounts while E*trade has 2.86m Charles Schwab or Ameritrade may purchase TD Waterhouse Charles Schwab customers are more affluent than E*Trades customers Passing new privacy protection laws Fear of computer hackers Many foreign economies are still unstable Competitors receiving more honors Lower competitor fees Growing concern for computer viruses Competitors have more physical locations Totals Weight 0.06 0.04 0.05 0.01 0.02 0.04 0.04 0.12 0.04 0.06 1.00 Rating 3 3 2 2 2 3 2 1 2 1 Weighted Score 0.18 0.12 0.10 0.02 0.04 0.12 0.08 0.12 0.08 0.06 2.24

Internal Audit
Strengths E*Trade provides 24/7 services E*Trade has a customer base in 119 countries Second largest ATM network in the U.S. Totaling 15,000 Power E sales promotion. Offers flat commission of $9.99 per trade for trades 27 or more times per quarter Increase in EPS from ongoing operations from $0.45 to $0.59 Introduction of enhanced online banking platform that is easier-to-use Increase in new banking accounts Various services to investors; such as a research database and personal assistance Total Protection Guarantee promises 100% fraud coverage and privacy protection Members of the board are all independent from the company Weaknesses Total debt to equity ratio is 0.36 while the industrys is 0.9 Decrease in active retail brokerage accounts Limited number of branches for customers to go to for assistance E*Trade has experienced computer system failures 97% of net revenues come from the U.S., Europe and South East Asia ROA is considerably lower than the industry average Lack of confidence from shareholders due to pay off Weak profitability ratios Charges as much as 300% more for stock transactions than some competitors Charges many miscellaneous fees

Internal Factors Evaluation Matrix

Strengths E*Trade provides 24/7 services E*Trade has a customer base in 119 countries Second largest ATM network in the U.S. Totaling 15,000 Power E sales promotion. Offers flat commission of $9.99 per trade for trades 27 or more times per quarter Increase in EPS from ongoing operations from $0.45 to $0.59 Weight 0.08 0.06 0.03 0.05 0.04 Rating 3 3 3 4 4 Weighted Score 0.24 0.18 0.09 0.20 0.16

Introduction of enhanced online banking platform that is easier-touse

Increase in new banking accounts Various services to investors; such as a research database and personal assistance Total Protection Guarantee promises 100% fraud coverage and privacy protection Members of the board are all independent from the company

0.03
0.06 0.05 0.03 0.02

3
4 4 3 3

0.09
0.24 0.20 0.09 0.06

IFE Matrix Concluded

Weaknesses Weight Rating Weighted Score

Total debt to equity ratio is 0.36 while the industrys is 0.9

Decrease in active retail brokerage accounts Limited number of branches for customers to go to for assistance E*Trade has experienced computer system failures 97% of net revenues come from the U.S., Europe and South East Asia ROA is considerably lower than the industry average Lack of confidence from shareholders due to pay off Weak profitability ratios Charges as much as 300% more for stock transactions than some competitors Charges many miscellaneous fees Totals

0.01
0.12 0.05 0.03 0.05 0.03 0.02 0.04 0.12 0.08 1.00

2
1 1 2 1 2 2 2 1 1

0.02
0.12 0.05 0.06 0.05 0.06 0.04 0.08 0.12 0.08 2.23

Key Financial Ratios

Growth Rate % Sales (MRQ) vs. QTR 1 year ago Sales (TTM) vs. TTM 1 Yr Ago Company N/A Industry 1.25 0.99 Sector 2.30 1.85 S&P 500 2.04 1.48

Sales - 5 Yr Growth Rate

EPS (MRQ) vs. Qtr 1 Yr Ago EPS (TTM) vs. TTM 1 Yr Ago EPS - 5 Yr Growth Rate Capital Spending - 5 Yr Growth Rate Financial Strength Quick Ratio (MRQ) Current Ratio (MRQ) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM)

N/A

17.04
16.36

13.09
24.92 2.30 1.85 13.09

6.48
26.78 2.04 1.48 6.48

N/A

1.25 0.99

N/A

17.04

N/A N/A 0.00 0.36 4.51

N/A N/A N/A N/A N/A

N/A N/A N/A N/A N/A

1.26 1.76 0.68 0.85 11.86

Key Ratios Concluded

Valuation Ratios P/E Ratio (TTM) Beta Price to Tangible Book (MRQ) Price to Free Cash Flow (TTM) Profitability Ratios Gross Margin (TTM) Gross Margin - 5 Yr Avg. EBITD Margin (TTM) EBITD - 5 Yr Avg. Operating Margin (TTM) 43.09 38.88 11.87 3.92 10.23 N/A N/A N/A N/A 20.49 N/A N/A N/A N/A 38.87 47.32 47.01 20.79 20.82 20.33 Company 23.82 3.04 3.28 7.41 Industry 18.81 1.69 3.94 36.78 Sector 16.30 0.83 3.82 15.35 S&P 500 24.01 1.00 7.56 28.97

Operating Margin - 5 Yr Avg.

Pre-tax Margin- 5 yr Avg. Net Profit Margin Effective tax rate

2.37
3.77 1.02 55.23

16.50
16.29 11.04 34.22

31.04
25.10 16.97 32.30

18.35
17.54 11.59 34.20

S.W.O.T Matrix
SO Strategies
Advertising campaign that promotes our enhanced online banking platform both domestically and globally(S6, O3)
Advertise Power E sales promotion to encourage more stock transactions Increase advertisement of 24 hour 7 days a week service along with strong ATM network

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

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

S.W.O.T Matrix Concluded

ST Strategies
Increase marketing in the 119 countries that we currently have a customer base in(S2, T1)
Advertise Power E sales promotion(S4, T4)

WT Strategies
Use debt financing to improve computer system to ensure that the website is secure and capable(W3, W4, T4, T5)
Market customers who have significant assets(W6, T3)

Space Matrix
Conservative FS 6 5 4 3 2 1 CA IS Aggressive

-6

-5

-4

-3

-2

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

Defensive

ES

Competitive

Boston Consulting Group Matrix

High 1.0 Medium .50 Star 27% Question Mark 27% Banking Low 0

High

+20

73% 73% Medium 0

Brokerage
Cash Cow Dog

Low

-20

IE Matrix
The Total IFE Weighted Scores
Strong 4.0 to 3.0 4.0 High I Average 2.99 to 2.0 II Weak 1.99 to 1.0 III

3.0

IV

VI

The EFE Total Medium Weighted Scores

73%
Brokerage 2.0 VII

27%
27%

E*Trade
73%

Bank VIII IX

Low 1.0

Grand Strategy Matrix

Rapid Market Growth Quadrant II Quadrant I

1. Concentric Diversification

2. Horizontal Diversification
3. Conglomerate Diversification 4. Joint Venture

Weak Competitive Position

Strong Competitive Position

Quadrant III Slow Market Growth

Quadrant IV

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 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

Possibilities

Implementation

Use revenues generated from European transactions to acquire at least 8,000 more ATMs 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