eTrade 2004 Annual Report Download - page 32

Table of Contents
Index to Financial Statements
ITEM 7.
MANAGEMENT
’
S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes that appear
elsewhere in this document.
OVERVIEW
We focus our business on utilizing technology to deliver financial solutions primarily to the self-directed investor built upon price/rate,
functionality and service. In 2004, we concentrated our efforts on integrating our product offerings and business operations creating operational
efficiencies, all contributing to the strength of our financial performance. As a result, in 2004, we reported earnings growth of over 70% on net
income from continuing operations of $350 million. For the first time in our history total client assets exceeded $100 billion.
We face numerous challenges in the financial services industry, which is characterized by increasingly rapid change, evolving customer
demands and intense competition. Some of the broader trends within the financial services industry that directly impact our business include:
•
Continued competitive pricing pressure on trading commissions within certain customer segments and on consumer loan originations;
•
Continued margin compression and low market volatility within market-making;
•
Continued market uncertainty and macroeconomic factors that could result in volatility in market volumes and trading activity; and
Our financial results are presented as two segments, brokerage and banking, which have different characteristics. The brokerage segment
generates revenues primarily from customer trading, market-making activities, proprietary trading, margin lending and brokerage-related fees.
The banking segment generates revenues primarily from its diversified interest-
earning assets (banking assets held which earn interest income),
gains on sales of loans and banking-related service charges and fees from asset management. During 2004, exclusive of intersegment revenues,
the brokerage segment generated approximately 60% and the banking segment generated 40% of the Company’s consolidated net revenues.
In 2005, we realigned our organizational structure and operations around our retail and institutional customers. For retail, the realignment
will integrate the management and operations of our brokerage, banking and lending businesses, focusing on delivering integrated product and
service offerings to the retail customer. For institutional, the realignment will integrate the management and operations of balance sheet
management, market making and institutional sales trading, focusing on creating a more significant capital markets business that will leverage
our retail customer base. We believe that the organizational realignment will help us to better execute on our vision.
We have and will continue to seek opportunities to:
•
Changes in interest rates and continued pressure on the spread between the interest we earn on interest-earning banking assets and that
which we pay on interest
-
bearing banking liabilities.
•
Deepen customer relationships by rewarding the retail customer for depth of the overall relationship with enhanced functionality. In
February 2005 we introduced E*TRADE Complete, an integrated financial services solution that will enable our customers to manage
all their trading, investing, banking and borrowing relationships in a consolidated manner. We expect this product to further
differentiate us from our competitors, attract and retain more of our retail customer’
s assets and result in utilizing more of our financial
solutions.
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•
Integrate our technology and service operations. In September 2004 we converted from multiple processing and clearing systems to
ADP Services, creating a scalable and cost efficient single platform.