eTrade 2008 Annual Report Download - page 35

management fees. The decrease in advisory management fees was primarily due to our sale of RAA. The
decrease in CDO management fees was due to the sale of our collateral management agreements during the first
quarter of 2008.
Principal Transactions
Principal transactions decreased 17% to $84.9 million for the year ended December 31, 2008 compared to
2007. The decrease in principal transactions resulted from lower institutional trading volumes. Our principal
transactions revenue is influenced by overall trading volumes, the number of stocks for which we act as a market
maker, the trading volumes of those specific stocks and the performance of our proprietary trading activities.
Loss on Loans and Securities, Net
Loss on loans and securities, net was $195.5 million and $2.5 billion for the year ended December 31, 2008
and 2007, respectively, as shown in the following table (dollars in thousands):
Year Ended December 31,
Variance
2008 vs. 2007
2008 2007 Amount %
Loss on sales of loans, net $ (783) $ (14,343) $ 13,560 (95)%
Gain (loss) on securities and other investments 40,289 (2,911) 43,200 *
Loss on asset-backed securities sale to Citadel — (2,241,031) 2,241,031 *
Loss on impairment (102,909) (168,739) 65,830 (39)%
Loss on trading securities, net (134,297) (33,441) (100,856) 302%
Hedge ineffectiveness 2,217 (5,009) 7,226 *
Loss on securities, net (194,700) (2,451,131) 2,256,431 (92)%
Loss on loans and securities, net $(195,483) $(2,465,474) $2,269,991 (92)%
* Percentage not meaningful
The loss on loans and securities, net during the year ended December 31, 2008 was due principally to losses
on our preferred stock in Fannie Mae and Freddie Mac, which experienced record price declines and volatility
during the third quarter of 2008. Based upon our concerns about continuing market instability, all of our
positions were liquidated during the third quarter of 2008, resulting in a pre-tax loss of $153.8 million, net of
hedges, that was recognized in loss on trading securities, net.
We recognized $95.0 million of impairment on certain securities in our CMO portfolio during the year
ended December 31, 2008, which was a result of the deterioration in the expected credit performance of the
underlying loans in the securities. Further declines in the performance of our CMO portfolio could result in
additional impairments in future periods. In addition, we recognized $7.7 million of impairment related to the
funds held in the Reserve Funds’ Primary Fund. For additional information about the Primary Fund, refer to
Liquidity and Capital Resources on page 48.
The loss on loans and securities, net during the year ended December 31, 2007 was due primarily to the $2.2
billion loss on the sale of our asset-backed securities portfolio in the fourth quarter of 2007.
Other Revenue
Other revenue increased 12% to $52.7 million for the year ended December 31, 2008 compared to 2007.
The increase in other revenue was due to income from the cash surrender value of Bank-Owned Life Insurance
(“BOLI”), which was entered into during the third quarter of 2007.
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