eTrade 2012 Annual Report Download - page 63

LIQUIDITY AND CAPITAL RESOURCES
We have established liquidity and capital policies to support the successful execution of our business
strategies, while ensuring ongoing and sufficient liquidity through the business cycle. These policies are
especially important during periods of stress in the financial markets, which have been ongoing since the fourth
quarter of 2007.
We believe liquidity is of critical importance to the Company and especially important within E*TRADE
Bank. The objective of our policies is to ensure that we can meet our corporate and banking liquidity needs under
both normal operating conditions and under periods of stress in the financial markets. Our corporate liquidity
needs are primarily driven by the amount of principal and interest due on our corporate debt as well as any
capital needs at E*TRADE Bank. Our banking liquidity needs are driven primarily by the level and volatility of
our customer deposits. Management maintains an extensive set of liquidity sources and monitors certain business
trends and market metrics closely in an effort 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 can fluctuate in any given period, are
more than sufficient to meet our needs for the foreseeable future.
Capital is generated primarily through the business operations of the trading and investing and balance sheet
management segments, which are primarily contained within E*TRADE Bank; therefore, we believe a key
indicator of the capital generated or used in our business operations is the level of regulatory capital in
E*TRADE Bank. As of December 31, 2012, E*TRADE Bank’s Tier 1 leverage ratio was 8.7%, an increase from
7.8% at December 31, 2011. We are focused on improving the Tier 1 leverage ratio at E*TRADE Bank through
deleveraging the balance sheet by a reduction in wholesale borrowings, retail deposits and customer payables.
We submitted an initial long-term strategic and capital plan to the OCC and Federal Reserve during the
second quarter of 2012. The plan included: our five-year business strategy; forecasts of our business results and
capital ratios; capital distribution plans in current and adverse operating conditions; and internally developed
stress tests. During the third quarter of 2012, we received initial feedback from our regulators on this plan and we
believe that key elements of this plan, specifically reducing risk, deleveraging the balance sheet and the
development of an enterprise risk management function, are critical. We submitted an updated long-term
strategic and capital plan to the OCC and Federal Reserve in February 2013, which included the key elements
outlined in the initial plan as well as the progress made during 2012 on those key elements. We believe that our
targets for capital levels at E*TRADE Bank and corresponding distributions of capital from E*TRADE Bank and
its subsidiaries to the parent company will be achievable over time. We plan to continue an active and ongoing
dialogue with our regulators to ensure our execution of the plan is consistent with their expectations.
Consolidated Cash and Equivalents
The consolidated cash and equivalents balance increased by $661.7 million to $2.8 billion at December 31,
2012 when compared to 2011. The majority of this balance is cash held in regulated subsidiaries, primarily the
Bank, outlined as follows (dollars in millions):
December 31, Variance
2012 2011 2012 vs. 2011
Corporate cash $ 407.6 $ 484.4 $ (76.8)
Bank cash 2,319.6 1,574.1 745.5
International brokerage and other cash 34.3 41.3 (7.0)
Total consolidated cash and equivalents $2,761.5 $2,099.8 $661.7
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