eTrade 2011 Annual Report Download - page 59

excess of the level our regulators define as well-capitalized. The continued generation of additional risk-based
and Tier I capital is a positive indicator that the regulatory capital in E*TRADE Bank is sufficient to meet its
operating needs.
Consolidated Cash and Equivalents
The consolidated cash and equivalents balance decreased by $0.3 billion to $2.1 billion for the year ended
December 31, 2011. The majority of this balance is cash held in regulated subsidiaries, primarily the Bank,
outlined as follows (dollars in millions):
December 31, Variance
2011 2010 2011 vs. 2010
Corporate cash $ 484.4 $ 470.5 $ 13.9
Bank cash 1,574.1 1,812.1 (238.0)
International brokerage and other cash 41.3 91.7 (50.4)
Total consolidated cash $2,099.8 $2,374.3 $(274.5)
Corporate cash is the primary source of liquidity at the parent company. We define corporate cash as cash held
at the parent company as well as cash held in certain subsidiaries that can distribute cash to the parent company
without any regulatory approval. We believe corporate cash is a useful measure of the parent company’s liquidity as
it is the primary source of capital above and beyond the capital deployed in our regulated subsidiaries. Corporate
cash can fluctuate in any given quarter and is impacted primarily by tax settlements, approval and timing of
subsidiary dividends, debt service costs and other overhead cost sharing arrangements. We target corporate cash to
be two times our annual debt service, or approximately $330 million. From the level of corporate cash at
December 31, 2011, we expect that it will decline generally in line with our corporate interest expense. However,
the parent company has approximately $0.5 billion in deferred tax assets, which will ultimately become sources of
corporate cash as the parent’s subsidiaries reimburse the parent for the use of its deferred tax assets.
Liquidity Available from Subsidiaries
Liquidity available to the Company from its subsidiaries is limited by regulatory requirements. In addition,
neither E*TRADE Bank nor its subsidiaries may pay dividends to the parent company without approval from its
regulators. Loans by E*TRADE Bank to the parent company and its other non-bank subsidiaries are subject to
various quantitative, arm’s length, collateralization and other requirements.
E*TRADE Bank is subject to capital requirements determined by its regulator. At December 31, 2011 and
2010, E*TRADE Bank had $1.2 billion and $1.0 billion, respectively, of Tier I capital in excess of the regulatory
minimum level required to be considered “well capitalized.” Since late 2009, the Company has requested and
received the approval of its primary regulators to send quarterly dividends from E*TRADE Bank to the parent. The
dividend had been equal to profits from the previous quarter of E*TRADE Securities LLC. We believe our former
regulator, the OTS, viewed these dividend requests as distinct from a more comprehensive request to release a
portion of E*TRADE Bank’s excess capital. During the third quarter of 2011, the Company transitioned regulators
from the OTS to the OCC and the Federal Reserve. We believe our new regulators would subject all dividend
requests to an equal level of scrutiny; therefore, rather than request a dividend from E*TRADE Bank in an amount
equal to the profits of E*TRADE Securities LLC in the prior quarter, we believe the best path for the Company’s
shareholders is to work on a comprehensive dividend plan that efficiently distributes capital among our regulated
entities and parent company. The Company is in dialogue with the regulators regarding our ability to implement a
comprehensive dividend plan and expects to complete that dialogue by the end of 2012. Following the completion
of that dialogue, we expect to have a better understanding of the timing of any future dividends; however, we cannot
predict the likelihood or the timing of regulatory approval for any such dividends.
The Company’s broker-dealer subsidiaries are subject to capital requirements determined by their respective
regulators. At December 31, 2011 and 2010, all of our brokerage subsidiaries met their minimum net capital
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