eTrade 2009 Annual Report Download - page 166

Guarantees
In prior periods when the Company sold loans, the Company provided guarantees to investors purchasing
mortgage loans, which are considered standard representations and warranties within the mortgage industry. The
primary guarantees are that: the mortgage and the mortgage note have been duly executed and each is the legal,
valid and binding obligation of the Company, enforceable in accordance with its terms; the mortgage has been
duly acknowledged and recorded and is valid; and the mortgage and the mortgage note are not subject to any
right of rescission, set-off, counterclaim or defense, including, without limitation, the defense of usury, and no
such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto. The Company is
responsible for the guarantees on loans sold. If these claims prove to be untrue, the investor can require the
Company to repurchase the loan and return all loan purchase and servicing release premiums. Management has
determined that quantifying the potential liability exposure is not meaningful due to the nature of the standard
representations and warranties, which have resulted in a minimal amount of loan repurchases.
ETBH raised capital through the formation of trusts, which sold trust preferred securities in the capital
markets. The capital securities are mandatorily redeemable in whole at the due date, which is generally 30 years
after issuance. Each trust issues trust preferred securities at par, with a liquidation amount of $1,000 per capital
security. The proceeds from the sale of issuances are invested in ETBH’s subordinated debentures.
During the 30-year period prior to the redemption of the trust preferred securities, ETBH guarantees the
accrued and unpaid distributions on these securities, as well as the redemption price of the securities and certain
costs that may be incurred in liquidating, terminating or dissolving the trusts (all of which would otherwise be
payable by the trusts). At December 31, 2009, management estimated that the maximum potential liability under
this arrangement is equal to approximately $436.5 million or the total face value of these securities plus
dividends, which may be unpaid at the termination of the trust arrangement.
NOTE 23—SEGMENT AND GEOGRAPHIC INFORMATION
Beginning in the first quarter of 2009, the Company revised its segment financial reporting to reflect the
manner in which its chief operating decision maker had begun assessing the Company’s performance and making
resource allocation decisions. As a result, the Company now reports its operating results in two segments: 1)
“Trading and Investing,” which includes the businesses that were formerly in the “Retail” segment and now
includes the Company’s market making business; and 2) “Balance Sheet Management,” which includes the
businesses from the former “Institutional” segment, other than the market-making business. The Company’s
segment financial information from prior periods has been reclassified in accordance with the new segment
financial reporting.
Trading and investing includes:
• trading and investing related brokerage products and services;
• investor-focused banking products;
• market-making; and
• employee stock option management software and services.
Balance sheet management includes:
• managing asset allocation and credit, liquidity and interest rate risk;
• managing loans previously originated or purchased from third parties; and
• managing customer cash and deposits.
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