On Monday, E*TRADE Financial Corporation (ETFC) announced that it has priced its $435 million total principal amount of senior notes at par due in 2016. The notes will bear annual interest of 6.75%.
The proceeds from the offering will be used to redeem its entire outstanding 7.375% Senior Notes worth $414.7 million aggregate principal amount due in 2013. The offering is expected to be closed on May 19, 2011, subject to the satisfaction of customary closing conditions. The payment also includes the related redemption premiums, accrued interest and associated fees and expenses.
J.P. Morgan Securities LLC, a division of JPMorgan Chase & Co. (JPM) is acting as a joint book-running manager for the offering.
Further, E*TRADE has in its pipeline $243 million of 7.875% notes maturing in 2015 and $930 million of 12.5% notes maturing in 2017.
As of March 2011, E*TRADE’s corporate debt amounted to $2 billion. The company’s cash position showed a balance of $1.9 billion as of March 31, 2011.
The latest capital raising initiative will help the company to reduce its total debt burden to a considerable extent. Further, this capital raising will help E*TRADE to enhance its capital ratios and therefore pursue growth and acquisition opportunities.
On May 16, E*TRADE released its Monthly Activity Report for April 2011, recording a sequential as well as year-over-year decline in average U.S. trades. For the month of April 2011, Daily Average Revenue Trades (DARTs) were 160,907, down 4% sequentially and 11% year over year. Broker performance is generally measured through DARTs. DARTs represent a number of trades from which brokers can expect commissions or fees.
Earnings Recap
In April, E*TRADE reported first-quarter 2011 net income of 16 cents per share, ahead of the Zacks Consensus Estimate of 12 cents, on the back of operating net revenue, strong brokerage business, decrease in provision for loan losses and improved expense management. The income also compares favorably with loss of 11 cents and 25 cents per share in the prior quarter and prior-year quarter, respectively.
Our Take
E*TRADE’sinitiatives to reduce balance sheet risk are encouraging, but it will add near-term pressure on interest margin. Though the company’s capital position and restructuring initiatives are promising, increasing operating expenses can have an adverse impact on the bottom line.
E*TRADE currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Also, considering the fundamentals, we maintain a long-term ‘Neutral’ recommendation on the stock.
E TRADE FINL CP (ETFC): Free Stock Analysis Report
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