E*TRADE Q3 Earnings Call Transcript

E*TRADE Financial Corporation (ETFC)
Q3 2009 Conference Call
October 27, 2009 5:00 p.m. ET

Executives

Don Layton – Executive Chairman and Chief Executive Officer
Bruce Nolop – Executive Vice President and Chief Financial Officer
Michael John Curcio – Executive Vice President and President of E*TRADE Securities

Analysts

Mike Vinciquerra – BMO Capital Markets
Rich Repetto – Sandler O''Neill & Partners
Ad Feinstein – Barclays Capital
Roger Freeman – Barclays Capital
Keith Walsh – Citigroup
Matt Snowling – FBR Capital Markets Corporation
Howard Chen – Credit Suisse
Mike Carrier – Deutsche Bank

Presentation

Operator

Welcome to the E*TRADE Financial Corporation Third Quarter 2009 Business Update Call. At this time, all participants have been placed on a listen–only mode. Following the presentation, the floor will be open for question.

I''ve been asked to begin this call with the following Safe Harbor statement. During this conference call, the company will be sharing with you certain projections or other forward–looking statements regarding future events or its future performance. E*TRADE Financial cautions you that certain factors, including risks and uncertainties referred to in the 10-Ks, 10-Qs and other documents E*TRADE files with the Securities and Exchange Commission could cause the company''s actual results to differ materially from those indicated by its projections or forward–looking statement.

This call will present information as of October 27, 2009. Please note that E*TRADE Financial disclaims any duty to update any forward-looking statements made in the presentation. During this call, E*TRADE Financial may also discuss some non–GAAP financial measures in talking about its performance. These measures will be reconciled to GAAP either during the course of this call or in the company''s press release, which can be found on its website at investor.etrade.com.

This call is being recorded. Replay of this call will be available via phone, webcast and podcast beginning today at approximately 7:00 p.m. Eastern Time. The call is being webcast live at investor.etrade.com. No other recordings or copies of this call are authorized or may be relied upon.

I''ll now turn the call over to Don Layton, Chairman and Chief Executive Officer of E*TRADE Financial Corporation, who is joined by Bruce Nolop, Chief Financial Officer, and other members of the E*TRADE management team. Mr. Layton, please go ahead.

Don Layton

Thank you all for joining us this afternoon. The third quarter was a true watershed in our turnaround plan with the completion of our balance sheet recapitalization as well as continuing declines in credit divisions and another quarter of our core franchise growing stronger. If we exclude the impact of the debt exchange, our net loss from continuing operations of $59 million was about 60% less than last quarter, and over an 18% decline from last year''s quarterly loss.

Let''s start with our online brokerage business which is performing very competitively. We can see this in four key customer metrics that highlight the vitality of the business this quarter.

First, trading activity remained robust with DARTs of 196,000. While this was down seasonably from the second quarter, year-over-year it was a full 7% higher. Year-to-date, we have in fact recorded our highest DART level for the first nine months of any year at 204,000. Second, the average commission per trade increased by $0.45 during the quarter to $11.50 as we enjoyed a higher level of engagement from Main Street investors returning to the market.

Third, margin receivables at quarter end rose by 10% to $3.4 billion as customer buying power and confidence continued to improve with the markets. And fourth, customer brokerage related cash grew by $2.1 billion from the prior quarter, including a $1.3 billion increase in sweep deposits and $0.7 billion increase in customer payables. In fact, the small 0.2 billion decline in net new asset flows this quarter was due entirely to our ongoing strategy to reduce bank related deposits which declined by $1.3 billion.

Additionally, our brokerage accounts continued to grow solidly after several torrid quarters. Despite the usual seasonal slowdown, we are at 14,000 net new brokerage accounts in the quarter for a record of $2.7 million. That''s a net increase of 132,000 brokerage accounts year-to-date which represents growth of 5% since the start of the year. Without question, our online brokerage business is benefiting from the secular trend of customers moving from traditional to online brokers and their growing desire to take direct control over their investments.

However, our competitive gains also can be traced to improve discipline and execution in serving our customers. This covers everything from addressing the underlying causes of operational complaints to improving customer service such as deposit hold times and first call resolution.