E*TRADE FINANCIAL CORP. By Louise Philbrick Keith Grant David Guerra

Overview Current Condition Vision and Mission External Factors CPM EFE Internal Factors IFE Analysis Key Ratios SWOT Matrix Space Matrix BCG IE Matrix GSM Possible Strategies Recommendations Evaluation

E*TRADE Overview E*trade Financial Corp., is a diversified financial services holding company, by and through its subsidiaries, is a global provider of financial services to retail, corporate and institutional customers. Building on our foundation in online investing, we have expanded to provide retail customers with an integrated and personalized suite of investing, banking, lending, planning and advice services primarily through online channels, under our new brand, "E*TRADE FINANCIAL.”

History of E*trade 1982, founded as a service bureau by inventor and physicist, Bill Porter 1992, E*Trades Securities Inc. was born to start online investment services 1996, E*Trade moved public 1997 Porter appointed Christos Cotsakos as CEO 2000, E*Trade purchased Telebanc Financial and to become known as E*Trade Financial 2001 E*Trade acquired Online Mortgage originator LoansDirect, and is now known as E*Trade Mortgage

What E*Trade is today E*Trade is active in Germany, Australia, Canada, New Zealand, Denmark, Hong Kong, Japan, Korea, Sweden, and the United Kingdom E*Trade is in a Process of searching for a new advertising agency to replace the current Goodby, Silverstein & Partners E*trade owns and operates over 15,200 Automated Teller Machines E*Trade is becoming a complete full service financial support and execution portal for individual investors

Stock Price Performance

Important E*Trade facts 2003 E*Trade’s revenues rose to $2008 million and net income rose to $203 million despite a reduction in the number of employees by only 5 from the previous year E*Trade’s major competitors are Schwab, Ameritrade, JB Oxford Holdings, Financial Institutions, and AB Watley Group E*Trade is trying to regain investor confidence after former CEO Christos Cotsakos received a 2001 pay package valued at $80 million even as the company’s share price plummeted E*Trade discontinued advertising in the Super Bowl in 2001

E*Trade’s goals and objectives To be the global leader in online financial and investment services To commit to helping our customers of all ages achieve their financial goals by using state-of-the-art technology Provide a continuous improvement environment for our customers, employees, and stockholders Provide career opportunities for employees and profitable growth for shareholders Operate using the highest ethical ideals Strive to improve the quality of life for citizens within the communities and countries we serve

Vision statement (Proposed) E*Trade’s vision is “to empower self- directed investors to make informed investment decisions and to take control of their financial future with anytime, anywhere access to the world’s major investment markets”

Mission Statement To create long term shareholder value through superior financial performance driven by the delivery of a diversified range of innovative, customer-focused financial products and services and supported by an operating culture based on the highest levels of teamwork, efficiency and integrity. Source:

Competitive Profile Matrix

External Audit OpportunitiesThreats 77% increase in transactions processed in South African banks Charles Schwab has 4million online accounts while E*trade has 2.86m Possible acquisition of TD WaterhouseCharles Schwab or Ameritrade may purchase TD Waterhouse “Highly satisfied” online banking customers are more likely to recommend their bank’s website Charles Schwab customers are more affluent than E*Trade’s customers Increase in online stock market tradingPassing new privacy protection laws Number of individuals aged fifty and over is increasing Fear of computer hackers Interest rates are relatively lowMany foreign economies are still unstable Customers are willing to pay for good service if it limits levels of inconvenience Competitors receiving more honors Global increase in internet accessibilityLower competitor fees Increase in the expected use of wireless internet devices in the U.S Growing concern for computer viruses The unification of the European economyCompetitors have more physical locations

External Factors Evaluation Matrix OpportunitiesWeightRatingWeighted Score 77% increase in transactions processed in South African banks Possible acquisition of TD Waterhouse “Highly satisfied” online banking customers are more likely to recommend their bank’s website Increase in online stock market trading Number of individuals aged fifty and over is increasing Number of individuals aged fifty and over is increasing Customers are willing to pay for good service if it limits levels of inconvenience Global increase in internet accessibility Increase in the expected use of wireless internet devices in the U.S The unification of the European economy

EFE Matrix Concluded ThreatsWeightRatingWeighted Score Charles Schwab has 4million online accounts while E*trade has 2.86m Charles Schwab or Ameritrade may purchase TD Waterhouse Charles Schwab customers are more affluent than E*Trade’s customers Passing new privacy protection laws Fear of computer hackers Many foreign economies are still unstable Competitors receiving more honors Lower competitor fees0.121 Growing concern for computer viruses Competitors have more physical locations0.061 Totals

Internal Audit StrengthsWeaknesses E*Trade provides 24/7 servicesTotal debt to equity ratio is 0.36 while the industry’s is 0.9 E*Trade has a customer base in 119 countriesDecrease in active retail brokerage accounts Second largest ATM network in the U.S. Totaling 15,000Limited number of branches for customers to go to for assistance “Power E” sales promotion. Offers flat commission of $9.99 per trade for trades 27 or more times per quarter E*Trade has experienced computer system failures Increase in EPS from ongoing operations from $0.45 to $ % of net revenues come from the U.S., Europe and South East Asia Introduction of enhanced online banking platform that is easier-to-use ROA is considerably lower than the industry average Increase in new banking accountsLack of confidence from shareholders due to pay off Various services to investors; such as a research database and personal assistance Weak profitability ratios “Total Protection Guarantee” promises 100% fraud coverage and privacy protection Charges as much as 300% more for stock transactions than some competitors Members of the board are all independent from the company Charges many miscellaneous fees

Internal Factors Evaluation Matrix StrengthsWeightRatingWeighted Score E*Trade provides 24/7 services E*Trade has a customer base in 119 countries Second largest ATM network in the U.S. Totaling 15, Power E” sales promotion. Offers flat commission of $9.99 per trade for trades 27 or more times per quarter Increase in EPS from ongoing operations from $0.45 to $ Introduction of enhanced online banking platform that is easier-to- use Increase in new banking accounts Various services to investors; such as a research database and personal assistance “Total Protection Guarantee” promises 100% fraud coverage and privacy protection Members of the board are all independent from the company

IFE Matrix Concluded WeaknessesWeightRatingWeighted Score Total debt to equity ratio is 0.36 while the industry’s is Decrease in active retail brokerage accounts0.121 Limited number of branches for customers to go to for assistance0.051 E*Trade has experienced computer system failures % of net revenues come from the U.S., Europe and South East Asia ROA is considerably lower than the industry average Lack of confidence from shareholders due to pay off Weak profitability ratios Charges as much as 300% more for stock transactions than some competitors Charges many miscellaneous fees0.081 Totals

Key Financial Ratios Growth Rate %CompanyIndustrySectorS&P 500 Sales (MRQ) vs. QTR 1 year agoN/A Sales (TTM) vs. TTM 1 Yr Ago Sales - 5 Yr Growth RateN/A EPS (MRQ) vs. Qtr 1 Yr Ago EPS (TTM) vs. TTM 1 Yr AgoN/A EPS - 5 Yr Growth Rate Capital Spending - 5 Yr Growth RateN/A Financial Strength Quick Ratio (MRQ)N/A 1.26 Current Ratio (MRQ)N/A 1.76 LT Debt to Equity (MRQ)0.00N/A 0.68 Total Debt to Equity (MRQ)0.36N/A 0.85 Interest Coverage (TTM)4.51N/A 11.86

Key Ratios Concluded Valuation RatiosCompanyIndustrySectorS&P 500 P/E Ratio (TTM) Beta Price to Tangible Book (MRQ) Price to Free Cash Flow (TTM) Profitability Ratios Gross Margin (TTM)43.09N/A Gross Margin - 5 Yr Avg.38.88N/A EBITD Margin (TTM)11.87N/A EBITD - 5 Yr Avg.3.92N/A Operating Margin (TTM) Operating Margin - 5 Yr Avg Pre-tax Margin- 5 yr Avg Net Profit Margin Effective tax rate

S.W.O.T Matrix SO StrategiesWO Strategies Advertising campaign that promotes our enhanced online banking platform both domestically and globally(S6, O3) Purchase TD Waterhouse from Toronto-Dominion Bank(W2, W3, W5, O2) Advertise “Power E” sales promotion to encourage more stock transactions Market and offer banking and brokerage services to Africa and other less developed countries(W5, O1) Increase advertisement of 24 hour 7 days a week service along with strong ATM network

S.W.O.T Matrix Concluded ST StrategiesWT Strategies Increase marketing in the 119 countries that we currently have a customer base in(S2, T1) Use debt financing to improve computer system to ensure that the website is secure and capable(W3, W4, T4, T5) Advertise “Power E” sales promotion(S4, T4) Market customers who have significant assets(W6, T3)

Space Matrix

Boston Consulting Group Matrix StarQuestion Mark Brokerage Banking Cash CowDog 27% 73% 27% High Medium Low High Medium Low

IE Matrix

Grand Strategy Matrix 1.Concentric Diversification 2.Horizontal Diversification 3.Conglomerate Diversification 4.Joint Venture

Possible Strategies Increase European Dominance Make attempts to acquire TD Waterhouse from Toronto-Dominion Bank E*Trade should look into broadening their International presence Use debt financing to improve computer system to ensure that their website is secure and capable of handling numerous transactions Increase customer base, by increasing awareness through stronger advertising

Decisions Primary Increase presence and awareness in the European Market Possibilities Improve current E-Commerce infrastructure to be certain that their website is not only secure, but capable of handling numerous transactions Attempt to acquire another online brokerage firm Pay dividends in attempt to increase stock price to raise capital

Implementation Use revenues generated from European transactions to acquire at least 8,000 more ATM’s in the European Market to help expand its global business within the next 2-3 years Use capital obtained from stock revenues to improve computer infrastructure Acquire TD Waterhouse within 3 years Increase promotion of enhanced online banking platform domestically and globally

2004 Financial Statistics Net Income- $380.5 million Total Revenue- $2,083 million EPS- $0.92 Total Debt- $585.6 million EBIT- $1071 million Working Capital $1,021.2 million Common Shares outstanding million Operating Income- $1,111.3 million