eTrade 2007 Annual Report Download - page 4

ITEM 1. BUSINESS
OVERVIEW
E*TRADE Financial Corporation is a global financial services company, offering a wide range of financial
solutions to customers under the brand “E*TRADE Financial.” We strive to create a differentiated financial
services franchise by providing innovative, easy, low-cost financial solutions and service to retail investors. Our
financial solutions include a suite of trading, investing, banking and lending products. Information on our website
is not a part of this report.
Our corporate offices are located at 135 East 57th Street, New York, New York 10022. We were
incorporated in California in 1982 and reincorporated in Delaware in July 1996. We have approximately 3,800
employees. We operate directly and through numerous subsidiaries many of which are overseen by governmental
and self-regulatory organizations. Our most significant subsidiaries are described below:
• E*TRADE Bank is a Federally chartered savings bank that provides lending products to retail customers
nationwide and deposit accounts insured by the Federal Deposit Insurance Corporation (“FDIC”);
• E*TRADE Capital Markets, LLC is a registered broker-dealer, market-making firm and also acts as agent
for our institutional customers;
• E*TRADE Clearing LLC is the clearing firm for our brokerage subsidiaries. Its main purpose is to
transfer securities from one party to another; and
• E*TRADE Securities LLC is a registered broker-dealer and provider of brokerage services to both retail
and institutional customers.
A complete list of our subsidiaries can be found in Exhibit 21.1.
We offer, either alone or with our partners, branded retail websites in the United States, Canada, Denmark,
Finland, France, Germany, Hong Kong, Iceland, Italy, the Netherlands, Norway, Singapore, Sweden, the United
Arab Emirates and the United Kingdom. We provide a branded educational website in China, but do not offer
retail services through that website.
We primarily provide services through our website at www.etrade.com. We also provide services through
our network of customer service representatives, relationship managers and investment advisors. We provide
these services over the phone or in person through our 27 E*TRADE Financial Branches.
CITADEL INVESTMENT
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 Wingate
Capital Ltd., a Cayman Islands company and affiliate of Citadel Limited Partnership (“Citadel”). In consideration
for the cash infusion, Citadel received three primary items: substantially all of our asset-backed securities
portfolio (approximately $3.0 billion in amortized cost), 84.7 million shares of common stock(1) in the Company
and approximately $1.8 billion in 12
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⁄ 2 % springing lien notes(2).
(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 1
⁄ 2 % 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, Inc. (“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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