The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
is a financial services company that provides online brokerage and related products and services to individual retail investors under the brand "E*TRADE Financial." The company also provides investor-focused banking products, primarily sweep deposits and savings products, to retail investors. It competes with firms like
Bank of America
We have launched coverage on E-Trade with an $18.87 price estimate for the company's stock, a premium of about 5% to market price.
We have broken down our analysis of E-Trade into three divisions: Net Interest on Assets, Trading Commissions, and Principal Transactions, Fees and Others.
E-Trade at a Glance
E-Trade provides various financial services to its customers through the following subsidiaries:
E-Trade Bank provides investor-focused banking products and deposit accounts insured by the Federal Deposit Insurance Corporation (FDIC).
E-Trade Securities LLC provides brokerage services to customers.
E-Trade Clearing LLC is the clearing arm responsible for the transfer of securities between parties.
The company provides a variety of trading products and services, including the ability to trade stocks and transfer funds between accounts through mobile phones, as well as access to various international equities and foreign currencies. It also has a range of long-term investing products and services, including advisory and retirement solutions, and access to more than 1,000 non-proprietary exchange-traded funds and over 8,000 non-proprietary mutual funds.
E-Trade's Advantage in the Online Brokerage Industry
Online brokerage firms compete on various aspects including commissions and fees, types of investment products offered, research and advice for investors and customer service. E-Trade has been able to establish a competitive edge by offering its customers banking solutions along with brokerage services.
With more and more online brokerage firms trying to provide end-to-end financial services to their customers with facilities like online bill payment and debit card services, E-Trade has managed to remain a front-runner in this sector and consistently attract new customers.
Net Interest earned on assets contributes to almost two-thirds of E-Trade's equity value by our estimates. E-Trade's interest earning assets were at their peak in mid-2007, with a value of more than $56 billion. The firm suffered significant losses during the global economic recession that followed, starting with the costly divestiture deal with the Citadel Investment Group in late 2007 to offload its subprime portfolio.
We believe that E-Trade's interest earning assets will increase by about 5% annually in the years to come. With the company's net yield expected to increase from its current value of 3% to 4% in the next few years, the expected interest income accounts for the majority of E-Trade's stock value.
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