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E*Trade Financial Corporation (often styled E*TRADE) is a U.S.-based
financial services company headquartered in New York. It is a holding company,
the major business of which is an online discount stock brokerage service for
self-directed investors. Investors can buy and sell such securities as stocks,
bonds, options, mutual funds, and exchange-traded funds via electronic trading
platforms or by phone. E-Trade Financial also provides investor-focused banking
products, primarily sweep deposits and savings products, to retail investors.
E-Trade Financial operates directly and through numerous subsidiaries, many of
which are overseen by governmental and self-regulatory organizations. The most
significant subsidiaries are E*TRADE Bank, E*TRADE Securities LLC, E*TRADE
Clearing LLC, G1 Execution Services, LLC (formerly known as E*TRADE Capital
Markets, LLC).
On November 29, 2007, E-Trade announced a deal with Citadel
LLC in which Citadel purchased E-Trade's securitized subprime mortgage
investments for $800 million, cash. The transaction removed the assets with the
greatest market risk from E-Trade's consolidated balance sheet¡ªtheir $3 billion
asset-backed securities (ABS) portfolio, including its ABS collateralized debt
obligations (CDOs) and second lien securities. This resulted in a net $2.2
billion reduction in assets on their balance sheet. In addition to that
divestiture, under the terms of the deal E-Trade received $1.6 billion of
capital in exchange for 12.5% senior unsecured notes and 84,687,686 shares
common stock (equal to 19.99% of the then currently outstanding shares). Citadel
received a seat on E-Trade Financial's Board of Directors; Mitch Caplan resigned
as CEO on the same day that the deal was announced.
Although E-Trade's
management admits that the deal was costly for E-Trade, it removed the risk from
those subprime investments and resulted in an infusion of $2.5 billion in cash.
Prior to the subprime mortgage crisis, E-Trade's stock price had reached a
52-week high of $26.08 and had a book value (assets¨Cliabilities / number of
shares outstanding) of $9.68 per share. However, on or about November 12, 2007,
Citigroup analyst Prashant Bhatia suggested that E-Trade Financial could face a
run on its bank operations and a bankruptcy filing, causing the stock to drop
precipitously.10
After the sell-off and the Citadel deal, E-Trade's book
value was $4.53 per share (a 52.2% drop), and the shares had reached a 52-week
low of $3.46 per share (an 86.7% drop). Bloomberg News reported that E-Trade had
lost between 1¨C2% of their deposits. Moody's reported that E-Trade saw a "17%
drop in customer cash and deposits in the month of November". The company
implemented a comprehensive turnaround plan at the end of 2007 which included an
assessment of its organizational structure, operating expense base, and balance
sheet transition, along with a customer win-back campaign.
E-Trade premiered
commercials during Super Bowl XLVI featuring a talking baby in front of a web
cam discussing investing and finance in an adult voice. The "insufferable
brat"16 returned the next year for Super Bowl XLVII, along with a Facebook page,
updates on Twitter, and videos on YouTube.17 It is a 30-second ¡°Talking Baby¡±
advertisement. The E-Trade Baby demonstrates a ¡°Save It¡± initiative that focuses
on just how much money is at stake in hidden 401(k) account fees and offers a
better approach, ¡°come to E*TRADE, and Save It".
The E-Trade baby is voiced
by comedian Pete Holmes. The campaign was created by Grey Global Group,
E-Trade's advertising agency of record since 2007. The first E-Trade baby was
Gregory Michael Miller, taken in March 2001.18 E-Trade Baby is an integrated
advertising campaign that appears online, television, print, and social media
which includes a series of Investing Solutions television commercials to
highlight wide range of investing, retirement, and trading solution available at
E-Trade. In 2013 the company had over 64 million total views and over 26,000
subscribers on YouTube, more than 108,000 Facebook Baby and Corporate pages
fans, and more than 17,000 Twitter followers.19 On March 21, 2014, the company
announced the end of the E-Trade baby via a commercial which aired during March
Madness.
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