eTrade 2007 Annual Report Download - page 27

• Total nonperforming loans receivable as a percentage of gross loans receivable is an indicator of the
performance of our total loan portfolio.
• Allowance for loan losses is an estimate of the losses inherent in our loan portfolio as of the balance sheet
date.
• Allowance for loan losses as a percentage of nonperforming loans is a general indicator of the adequacy
of our allowance for loan losses. Changes in this ratio are also driven by changes in the mix of our loan
portfolio.
Significant Events in 2007
Citadel Investment of $2.5 Billion Including Sale of Asset-Backed Securities Portfolio
The operating environment during 2007, particularly during the second half of the year, was extremely
challenging as our exposure to the crisis in the residential real estate and credit markets adversely impacted our
financial performance and led to a disruption in our customer base. As a result, we believe it was necessary to
obtain a significant infusion of cash, which would in turn stabilize our balance sheet and our customer base.
On November 29, 2007, we entered into an agreement to receive a $2.5 billion cash infusion from Citadel.
In consideration for the cash infusion, Citadel received three primary items: substantially all of our asset-backed
securities portfolio, 84.7 million shares of common stock(1) in the Company and approximately $1.8 billion in
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⁄ 2 % springing lien notes(2). We believe this transaction provided timely stability for our business and helped
alleviate customer concerns.
Developed a Plan to Restore Customer Confidence and Return to Growth
We developed a plan focused on resolving the risks in our balance sheet and returning our primary focus to
the retail investor. Our plan contains three core goals: reduce credit risk in our loan portfolio, reduce our level of
corporate debt and reduce operating expenses to allow us to reinvest in growth initiatives within the core retail
franchise. We believe the successful execution of this plan will restore customer confidence and return the
Company back to a path of financial growth.
Launch of Global Trading Platform
We launched our Global Trading Platform, which provides the ability to buy, sell and hold foreign equities
in local currencies to investors who seek liquidity and diversity in their portfolios. Our U.S. customers now have
access to foreign stocks and currencies in six major international markets: Canada, France, Germany, Hong
Kong, Japan and the United Kingdom.
International Expansion
We continued our expansion into international markets with the launch of operations in Norway, the
Netherlands and Singapore. In Norway, we now offer online trading of all Norwegian stocks registered on the
Norwegian exchange Oslo Børs, as well as stocks from Scandinavian markets in Sweden, Denmark, Finland, and
the American markets. In the Netherlands and Singapore, we offer Dutch and Singapore investors direct access to
the US stock markets through our Global Trading Platform.
(1) The 84.7 million shares of common stock were issued in increments: 14.8 million upon initial closing in November 2007; 23.2 million
upon Hart-Scott-Rodino Antitrust Improvements Act approval in December 2007; and 46.7 million shares are expected to be issued in
the first quarter of 2008 as the Company has received all necessary regulatory approvals.
(2) Included in the $1.8 billion issuance is $186 million of 12 ½% springing lien notes in exchange for $186 million of the Company’s senior
notes that were owned by Citadel. The $1.8 billion in 12 ½% springing lien notes includes $100 million in notes issued to BlackRock in
connection with the transaction. The $1.8 billion in 12 ½% springing lien notes represents the amount outstanding as of December 31,
2007 and does not include the additional $150 million of springing lien notes issued in January 2008 in accordance with the terms of the
agreement with Citadel.
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