E*TRADE Financial Corp. at Merrill Lynch Banking & Financial Services Conference - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

PATRICK, MODERATOR, MERRILL LYNCH: Okay, anchoring day one of our conference, today is E'Trade Financial. E'Trade is at the forefront of developing an integrated online retail bank and brokerage model. The firm's core retail business is supplemented by an institutional securities and balance sheet portfolio management arm, which is structured to complement and extend the retail segment's platform. Another point of differentiation versus E'Trade's key peer is the firm's growing international footprint. E'Trade has established an ambitious goal to grow non-U.S. revenue to 30% of overall revenue by the end of the decade.

Joining us to talk about the firm's growth strategy is E'Trade's CEO, Mitchell Caplan. Since being named CEO at the beginning of 2003 Mitch has streamlined and focused E'Trade's businesses. Before joining E'Trade Mitch served as CEO of Telebank, which was acquired by E'Trade in early 2000. With that, it is my pleasure to turn the podium over to Mitch. Thanks.

MITCHELL CAPLAN, CEO, E'TRADE: Thanks a lot, Patrick. I'd first like to - so, we can never begin with our general counsel here without the Safe Harbor Statement.

Let me spend a few minutes telling you, sort of outlining the agenda in terms of the presentation. I'd like to spend a few minutes talking strategically about the company and where we're going in terms of the overall marketplace, and how we fit in, and what we think are the opportunities. Then specifically spend a little bit of time around some of the proof points of our model as it has evolved, and where we see success and where we actually see challenges and opportunity. I'll spend a little bit of time, as Patrick just mentioned, on where we see international growing, and why we see an opportunity there, and then finally conclude with some of the growth objectives.

So, it's hard to begin any presentation and really talk about where we're going or what we've done without putting it in the context of the overall global market. And one of the things that we clearly believe is a huge opportunity as we have transformed our business model away from focusing on [monoline] products and monoline customers. So where in the early days it may have been, as Patrick mentioned, Telebank, trying to serve a savings bank customer as a monoline customer with a monoline product, or [E'Trade] in its early days serving a monoline customer interested in trading with an online trading solution as the only real product, to a place where we believe the much more interesting opportunity within financial services globally is with a mass affluent customer, and then ultimately serving their financial needs with a set of solutions.

When you look at mass affluent, it is clearly by far the fastest growing segment both inside the U.S. and outside the U.S. internationally, around customer growth. And when you define it, currently it's defined as somewhere between 50 and 500,000 in investable assets. Over the next couple of years it's expected to grow at twice the national average for the U.S. population, and it also is supposed to grow significantly higher than the other forms of customers within the overall financial services marketplace.

And one of the things that we see as a huge opportunity is that when you look at the bulge bracket firms, both domestically and internationally, they are typically focusing on customers who are much higher up in terms of the chain around asset accumulation and asset wealth. Often the ticket point of entry for many of the bulge bracket firms are both for profitability and also focus is a million and above. So if you look at the customer base that's evolving at 50 to 500, it is either currently served by the bulge bracket firms or those who are building wealth. There's less of a focus against that customer base, generally both in the domestic marketplace and internationally.

And so we believe over the long-term what will allow any business to succeed as they target this mass affluent customer is a compelling suite of products, real solutions for them, that are all value based. And that value will come in the form of price and functionality and service. And it really has to be all three working together.

Next slide shows you quickly how our business model has transformed back in the sort of '82 timeframe when E'Trade was originally founded as a, again, monoline provider of online trading solutions against this customer base, all the way until 1999, that was truly its focus. And it tended to be a business that was about using technology as a disintermediator, to be able to price differentiate from the larger marketplace of providers around trading solutions, and ultimately the value proposition was letting a customer know that by not using brick-and-mortar and using alternative distribution through the internet there would be a significant price differentiation. And the business grew from its formation in '82 to going public in '96, all the way until '99.

In the 2000 timeframe, the evolution continued. We bought, actually the bank that I had founded in '89, so we started to move beyond just the solutions of trading but into deposit products and also some credit products. We also bought an institutional business, and we began to also extend into other forms of not only institutional and global execution and settlement, but also with market making. So the 2000 to '02 timeframe was really beginning the transformation away from being this monoline provider and thinking about other products and services.

In '03 to '04, that's really the time that we did the work around the back office, beginning to consolidate, recognizing that whether we had grown organically or inorganically we were in a place and it didn't matter whether you were thinking domestically or internationally, that we had far too many back offices. That when you looked at the business as a whole, it was nowhere near as efficient as it needed to be in terms of its customer experience, and so how you looked as an E'Trade customer from the outside in and keeping all of the opportunities around the solutions together, all around the efficiencies on the backend. And so we ultimately integrated the platform.

And, finally, it put us in a place where starting in '05 and now in '06 and beyond, we were able to think totally differently about the business, so rather than thing about bank and brokerage, or any of the other kinds of products or services, we began to think more holistically about the customer. So we focused and ran the business as retail and institutional. With the idea of the core of the business being about the global retail customer and leveraging it through institutional, launching a product, E'Trade Complete, and then now in 2006 and beyond it's to take that vision of what we've executed on domestically and extend it internationally.

The next slide, and I was touching on this a minute ago, really shows you graphically exactly how we think about the business and the opportunity and how we intend to execute. But the core of everything, and we begin and end with a global retail customer. And around that global retail customer, again, you're not thinking about a bank or a brokerage or a credit provider, or any of the other products and services, as much as you are thinking about points …