Newlyweds E-Trade, Telebanc Ended '99 with Strong Porfits

By Snel, Ross | American Banker, January 20, 2000 | Go to article overview

Newlyweds E-Trade, Telebanc Ended '99 with Strong Porfits


Snel, Ross, American Banker


E-Trade Group Inc. and Telebanc Financial Corp. separately announced strong quarterly earnings results on Wednesday, setting the stage for healthy growth as they pursue their plan to become a one-stop shop for on-line financial services.

E-Trade's better-than-expected earnings and Telebanc's 328% gain in quarterly net income bode well for the combined company, which officially came into being Jan. 12 when the Office of Thrift Supervision approved the merger of E-Trade's Internet brokerage with Telebanc's branchless bank.

"We are sure that the whole will be greater than the sum of the parts," said Kathy Levinson, president and chief operating officer at E-Trade Group.

E-Trade's net loss of $38.1 million, or 15 cents a share, for the quarter that ended Dec. 31 beat the expectations of analysts surveyed by First Call Corp. by 6 cents a share. Arlington, Va.-based Telebanc, which is to be renamed E-Trade Bank, reported net income of $2.8 million, or 8 cents per share, excluding one-time charges. First Call said it had no consensus estimate for the quarter, because analysts had stopped covering Telebanc as a separate company after the merger was announced.

Telebanc's net income for the year came to $10.3 million, excluding charges, up from $1 million in 1998. Menlo Park, Calif.-based E-Trade did not report annual results; its fiscal year ends Sept. 30.

In one of the first examples of the new products the combined institution plans, E-Trade this quarter will offer a single log-on for on-line brokerage and bank accounts, and a Web page showing consolidated account information.

But E-Trade faces challenges in trying establish core financial services relationships with consumers, instead of just offering low-cost brokerage services, said L. Russell Keene, equity analyst Kat Putnam, Lovell, de Guardiola in New York.

"You need a blended distribution platform, including branches or some other kind of physical presence," said Mr. Keene, who called E-Trade's business model "ahead of its time."

E-Trade is considering how to address its lack of a brick-and-mortar presence, said Christos M. Cotsakos, chairman and chief executive officer of E-Trade. He declined to elaborate.

Both E-Trade and Telebanc demonstrated an ability to keep marketing costs under control last year even as they significantly expanded their customer bases. …

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