eTrade 2012 Annual Report Download - page 17

If we do not successfully participate in consolidation opportunities, we could be at a competitive disadvantage.
There has recently been significant consolidation in the financial services industry and this consolidation is
likely to continue in the future. Should we be excluded from or fail to take advantage of viable consolidation
opportunities, our competitors may be able to capitalize on those opportunities and create greater scale and cost
efficiencies to our detriment.
Although we are currently constrained by the terms of our corporate debt and the memoranda of
understanding we and E*TRADE Bank entered into with our primary banking regulators, we may seek to acquire
businesses in the future. The assets of businesses we have acquired in the past were primarily customer accounts.
In future acquisitions, our retention of customers’ assets may be impacted by our ability to successfully integrate
the acquired operations, products (including pricing) and personnel. Diversion of management attention from
other business concerns could have a negative impact. If we are not successful in our integration efforts, we may
experience significant attrition in the acquired accounts or experience other issues that would prevent us from
achieving the level of revenue enhancements and cost savings that we expect with respect to an acquisition.
Risks associated with principal trading transactions could result in trading losses.
A majority of our market making revenues are derived from trading as a principal. We may incur trading
losses relating to the purchase, sale or short sale of securities. We carry equity security positions on a daily basis
and from time to time, we may carry large positions in securities of a single issuer or issuers engaged in a
specific industry. Sudden changes in the value of these positions could impact our financial results.
Reduced spreads in securities pricing, levels of trading activity and trading through market makers could harm
our market maker business.
Technological advances, competition and regulatory changes in the marketplace may continue to tighten
securities spreads. Tighter spreads could reduce revenue capture per share by our market maker, thus reducing
revenues for this line of business.
Advisory services subject us to additional risks.
We provide advisory services to investors to aid them in their decision making. Investment decisions and
suggestions are based on publicly available documents and communications with investors regarding investment
preferences and risk tolerances. Publicly available documents may be inaccurate and misleading, resulting in
recommendations or transactions that are inconsistent with the investors’ intended results. In addition, advisors
may not understand investor needs or risk tolerances, which may result in the recommendation or purchase of a
portfolio of assets that may not be suitable for the investor. To the extent that we fail to know our customers or
improperly advise them, we could be found liable for losses suffered by such customers, which could harm our
reputation and business.
We have a significant deferred tax asset and cannot assure it will be fully realized.
We had net deferred tax assets of $1,416.2 million as of December 31, 2012. We did not establish a
valuation allowance against our federal net deferred tax assets as of December 31, 2012 as we believe that it is
more likely than not that all of these assets will be realized. In evaluating the need for a valuation allowance, we
estimated future taxable income based on management approved forecasts. This process required significant
judgment by management about matters that are by nature uncertain. If future events differ significantly from our
current forecasts, a valuation allowance may need to be established, which could have a material adverse effect
on our results of operations and our financial condition.
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