eTrade 2002 Annual Report Download - page 171

Table of Contents
Index to Financial Statements
Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends or make any unsecured advances or
loans to its parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its
minimum dollar amount requirement. In January 2002, E*TRADE Securities paid a dividend to E*TRADE Group in the amount of $50 million.
The table below summarizes the minimum capital requirements for the Company’ s U.S. broker-dealer subsidiaries (in thousands):
December 31, 2002
RequiredNet Capital Net Capital ExcessNet Capital
E*TRADE Clearing $ 21,725 $ 102,518 $ 80,793
E*TRADE Securities $ 250 $ 69,119 $ 68,869
E*TRADE Global Asset Management, Inc. $ 446 $ 7,397 $ 6,951
E*TRADE Professional Trading, LLC $ 558 $ 1,582 $ 1,024
Dempsey & Company, LLC $ 815 $ 27,170 $ 26,355
Engelman Securities, Inc. $ 100 $ 616 $ 516
GVR Company, LLC $ 1,000 $ 3,272 $ 2,272
Versus Brokerage Service (U.S.) Inc. $ 100 $ 121 $ 21
In November 2002, Momentum Securities, LLC was reorganized and renamed E*TRADE Professional Trading, LLC.
In June 2002, the Company discovered that Momentum was deficient on its net capital for the month ending May 31, 2002. This deficiency was
prior to the Company’ s acquisition of Momentum effective June 3, 2002. Since its acquisition of Momentum, the Company contributed a total
of approximately $12 million to Momentum so that it met all operational and capital requirements. Pursuant to the terms of an agreement with
Tradescape Corporation (the former parent company of Momentum), the Company expects to receive payment from Tradescape Corporation
for some or all of this amount, in part through the release and disposition of certain shares of the Company’ s common stock previously held in
escrow under the terms of the acquisition agreement. The Company has not waived any rights it has or may have against Tradescape
Corporation, its shareholders or its employees for recovery of amounts that may be owing.
In fiscal 2002, the Company closed E*TRADE Marquette Securities, Inc., Web Street Inc. and its related subsidiary and Tradescape Securities,
LLC broker-dealers and consolidated the activities into its other broker-dealer subsidiaries. The Company’ s international broker-dealer
subsidiaries, located in Canada, Europe and South East Asia, have various and differing capital requirements, all of which were met at
December 31, 2002. At December 31, 2002, these companies had an aggregate net capital of $71.9 million, required net capital of $21.9
million and excess net capital of $50.0 million.
Banking
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank’ s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’ s assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The Bank’ s capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total
and Tier I capital to risk-weighted assets, Tier I Capital to adjusted total
124
2003. EDGAR Online, Inc.