eTrade 2009 Annual Report Download - page 59

trends and market metrics closely to ensure we have sufficient liquidity and to avoid dependence on other more
expensive sources of funding. Management believes the following sources of liquidity are of critical importance
in maintaining ample funding for liquidity needs: Corporate cash, Bank cash, deposits and unused FHLB
borrowing capacity. Management believes that within deposits, sweep deposits are of particular importance as
they are the most stable source of liquidity for E*TRADE Bank when compared to non-sweep deposits. Overall,
management believes that these liquidity sources, which we expect to fluctuate in any given period, are more
than sufficient to meet our needs for the foreseeable future.
Capital is generated primarily through our business operations and our capital market activities. Our trading
and investing segment has been profitable and a generator of capital for the past six years and we expect that
trend to continue. However, our provision for loan losses, which is reported in the balance sheet management
segment, has more than offset the capital generated by both of our segments. While we cannot state this with
certainty, we believe that this trend will reverse at some point in the foreseeable future and our business
operations will again be a net generator of capital.
During the second and third quarters of 2009, our primary banking regulator, the OTS, advised us to raise
additional equity capital for E*TRADE Bank and to substantially reduce our corporate debt service burden. This
was also consistent with management’s belief during the same period. In response, we implemented a plan to
strengthen our capital structure by raising cash equity primarily to support E*TRADE Bank and also to enhance
our liquidity. As part of this plan, we raised $733 million in net proceeds from three separate common stock
offerings, as detailed in the table below (dollars and shares in millions):
Net Proceeds Shares
Equity Drawdown Program, May 2009 $ 63 41
Public Equity Offering, June 2009 523 500
At the Market Offering, September 2009 147 80
Total $733 621
Also as part of our capital plan, we completed an exchange of $1.7 billion aggregate principal amount of our
corporate debt, which included $1.3 billion principal amount of our 12
1
⁄ 2 % Notes and $0.4 billion principal
amount of our 8% Notes, for an equal principal amount of newly-issued non-interest-bearing convertible
debentures. As a result of the completion of this exchange, we reduced our annual corporate interest payments by
approximately $200 million and eliminated any substantial debt maturities until 2013. As of December 31, 2009,
$720.9 million of the newly-issued non-interest-bearing convertible debentures had been converted into
696.6 million shares of common stock.
We believe the combined impact of our common stock offerings and the Debt Exchange substantially
improved our capital structure. As a result, we believe we will be in a position to respond opportunistically with
regard to any additional capital planning actions, such as further debt-for-equity exchanges, additional cash
capital raising activities or sales of any non-core assets.
During the fourth quarter of 2008, we applied to the U.S. Treasury for funding under the Troubled Asset
Relief Program (“TARP”) Capital Purchase Program. In the fourth quarter of 2009, the OTS requested that we
declare our intentions with respect to our application. In light of our capital raising activities in the second and
third quarters of 2009 and the reduction in interest-bearing debt in connection with the completion of the Debt
Exchange, we withdrew our application on October 30, 2009.
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