eTrade 2009 Annual Report Download - page 43

The crisis in the residential real estate and credit markets has created significant volatility in our results of
operations. This volatility is isolated almost entirely to our balance sheet management segment. Our forecasts for
this segment include assumptions regarding our estimate of future expected credit losses, which we believe to be
the most variable component of our forecasts of future taxable income. We believe this variability could create a
book loss in our overall results for an individual reporting period while not significantly impacting our overall
estimate of taxable income over the period in which we expect to realize our deferred tax assets. Conversely, we
believe our trading and investing segment will continue to produce a stable stream of income which we believe
we can reliably estimate in both individual reporting periods as well as over the period in which we estimate we
will realize our deferred tax assets.
In evaluating the need for a valuation allowance, we estimated future taxable income based on management
approved forecasts. This process required significant judgment by management about matters that are by nature
uncertain. If future events differ significantly from our current forecasts, a valuation allowance may need to be
established, which would have a material adverse effect on our results of operations and our financial condition.
2008 Compared to 2007
We had a net loss from continuing operations of $809.4 million for the year ended December 31, 2008. The
loss for the year ended December 31, 2008 was due principally to an increase in our provision for loan losses of
$943.6 million to $1.6 billion. In addition, we incurred losses of $153.8 million, net of hedges, on our preferred
stock in Fannie Mae and Freddie Mac during the period ended December 31, 2008. The losses in our balance
sheet management segment, which included both of these items, more than offset our trading and investing
segment income, which was $623.2 million for the year ended December 31, 2008.
Revenue
The components of net revenue and the resulting variances are as follows (dollars in millions):
Year Ended December 31,
Variance
2008 vs. 2007
2008 2007 Amount %
Revenue:
Net operating interest income $1,268.0 $ 1,583.6 $ (315.6) (20)%
Commissions 515.5 663.6 (148.1) (22)%
Fees and service charges 200.0 230.5 (30.5) (13)%
Principal transactions 84.9 102.2 (17.3) (17)%
Losses on loans and securities, net (100.5) (2,296.7) 2,196.2 *
Net impairment (95.0) (168.7) 73.7 (44)%
Other revenues 52.7 47.2 5.5 12%
Total non-interest income 657.6 (1,421.9) 2,079.5 *
Total net revenue $1,925.6 $ 161.7 $1,763.9 *
* Percentage not meaningful.
Total net revenue increased to $1.9 billion for the year ended December 31, 2008 compared to 2007. This
increase was primarily due to the $2.2 billion loss on the sale of our asset-backed securities portfolio for the year
ended December 31, 2007.
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