eTrade 2004 Annual Report Download - page 100

Download and view the complete annual report

Please find page 100 of the 2004 eTrade annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 150

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150

Table of Contents
Index to Financial Statements
The following table summarizes the asset-backed securities transferred to each CDO, the amount of the cash proceeds, the preference
shares purchased by ETGAM and the current rating for those preference shares (dollars in millions):
The carrying value of ETGAM’s retained interest in both CDO I, CDO II and CDO III is subject to future volatility in credit, interest rate
and prepayment risk. The investment in the preference shares is classified as a trading security in the Company’s investment portfolio.
Therefore, changes in the market value of these securities are recorded in gain on sales of loans held-for-sale and securities, net in the
consolidated statements of operations. The following table presents a sensitivity analysis of ETGAM’s retained interests in CDO I, CDO II and
CDO III at December 31, 2004 (dollars in thousands):
The sensitivities and estimates shown in the preceding table are hypothetical and should be used with the understanding that actual future
performance and results can vary significantly. As the sensitivity analysis table shows, changes in the fair value based on a 10% variation in
assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be
linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the preference shares is calculated without
changing any other assumption. Changes in one factor may result in changes in another factor (for example, increases in market interest rates
could result in lower prepayments and increased credit losses), which could magnify or counteract the sensitivities.
91
Transaction Date
Asset-Backed Securities
Transferred to CDO
Proceeds
Preference Shares Purchased
by ETGAM
ETGAM
Bank
Independent
Investment
Advisor
Total
Amount
Rating at 12/31/04
CDO
Moody’s
Fitch
CDO III
December 2004
$
124.0
$
—
$
175.5
$
299.5
$
304.4
$
5.0
Ba1
BB+
CDO II
August 2003
78.4
321.7
—
400.1
400.9
6.0
Ba2
BBB
-
CDO I
September 2002
50.2
—
200.0
250.2
251.7
8.6
B3
CCC
-
Total
$
252.6
$
321.7
$
375.5
$
949.8
$
957.0
$
19.6
CDO I
CDO II
CDO III
Fair value of retained preference shares
(1)
$
1,003
$
6,272
$
5,000
Weighted
-
average remaining life (years)
7.70
3.76
4.26
Weighted
-
average prepayment speed
15.00
%
10.00
%
0.00
%
Impact of 10% adverse change
$
(135
)
$
(102
)
$
(111
)
Impact of 20% adverse change
$
(259
)
$
(203
)
$
(220
)
Weighted
-
average discount rate
2.00
%
16.00
%
15.00
%
Impact of 10% adverse change
$
(15
)
$
(353
)
$
(304
)
Impact of 20% adverse change
$
(30
)
$
(675
)
$
(582
)
Weighted
-
average expected credit losses
4.33
%
0.60
%
0.11
%
Impact of 10% adverse change
$
(879
)
$
(40
)
$
(5
)
Impact of 20% adverse change
$
(1,003
)
$
(82
)
$
(11
)
Actual credit losses to date
$
5,555
$
—
$
—
For the year ended December 31, 2004
(2)
Actual interest payments received
$
458
$
1,080
$
—
(1)
Based on calculated discounted expected future cash flows, premised on weighted-average life, prepayment speed, discount rate and expected credit losses shown in this table.
(2)
No actual principal payments have been received to
-date.