) has gained approval from U.S. regulators to transfer capital
from its banking subsidiary, E*TRADE Bank. The capital will be
used for general corporate purposes.
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The authorization comes as a relief to this online discount
brokerage firm, which was embroiled in mortgage-related
discrepancies during the financial crisis. Though the amount
being sent from the bank is lower than expected, it will help the
beleaguered firm recover from its capital deficiencies.
E*Trade Bank will transfer a dividend of $75 million to its
parent company. The parent company also plans to seek consent for
continuous quarterly distributions from the banking subsidiary
going forward. The value distributions will be determined
according to the bank's net income in the previous quarter.
The latest regulatory nod is the second time that E*TRADE
Financial gained approval to divert capital from its banking
subsidiary. In September, E*TRADE Bank had gained sanction to
distribute dividend capital totaling $100 million to the parent
We commend E*TRADE's initiatives to reduce balance sheet risks
but believe that these will put near-term pressure on net
interest margin. The company's revivification of its discount
brokerage business following the mortgage-related issues during
the financial crisis appears to be promising.
Moreover, a decrease in expenses reflects the successful
execution of the company's cost reduction initiatives. Further,
E*TRADE's decision to focus on core operations and exit the
market making business is expected to improve profitability.
Nevertheless, amid a challenging economy, decline in top line and
market volatility remain concerns.
E*TRADE currently carries a Zacks Rank #3 (Hold). Some other
investment brokers that are performing well include
Ladenburg Thalmann Financial Services Inc.
Interactive Brokers Group, Inc.
). While Ladenburg Thalmann has a Zacks Rank #1 (Strong Buy),
Charles Schwab and Interactive Brokers hold a Zacks Rank #2