E*Trade Financial Earnings Call Nuggets: Tier 1 Leverage Ratio and Brokerage Attrition
Tier 1 Leverage Ratio
Howard Chen – Credit Suisse: Matt now that you have completed the refinancing actions and you are making meaningful progress in deleveraging. Can you just outline for us what next steps the company has to take and what we should expect to hear is going to hit that time table to achieve your goal of after aiming bank capital by the end of the year?
Matthew J. Audette – EVP and CFO: The most measureable thing is going to be to continue to improve the Tier 1 leverage ratio at the bank. So, our target is 9.5% and to dividend capital above that, towards the end of 2013. That’s the most visible theme we have seen, but I think it’s important to emphasize that a dividend is not something that you can simply do based on above 9.5%. All of the things that are important and part of our plan, I think we really need to come together for that to make sense; meaning when you did continue to build out our enterprise risk management capabilities. I’d say continue to mitigate and decrease the credit risk on the balance sheet. We need to implement the cost reductions, we need to do all of those things and I think from, if we are able to execute on all of that, I feel like we would be in a good position for dividend, but I’d be (Indiscernible) it in close but I can’t speculate on whether the regulators would agree with what I’m saying. But I feel confident from our perspective is the right thing to focus on.
Howard Chen – Credit Suisse: And then you also noted in your comments your outlook for provision expenses declined over the longer term. But just given the loan book continues to burn down, and you are pulling down reserves. Why shouldn’t provision expense be also down in 2013 versus what we just experienced in 2012.
Matthew J. Audette – EVP and CFO: I think without getting precise in any individual quarter, which can be pretty choppy. I think our expectations are down over the long-term, it just something on a quarter-to-quarter basis that may not be the case. So, year-over-year certainly we would expect to decline.
Richard Repetto – Sandler O’Neill: I guess the first question is on brokerage attrition. I know you made great strategy map, when you look at the year-over-year numbers, but 4Q at least by our calculations ticked up it looks almost close to 10%, was there anything going on in 4Q that is peculiar from the 8.5% so run rate you’ve been on?
Matthew J. Audette – EVP and CFO: Nothing in particular Rich, I think focusing on the year is really what it grounded. So, we were 9% for the year, which is a record low for us. If you go back to last quarter to 8.5%, I mean that’s one of the lowest numbers we have ever seen. So, I think it’s almost like – I was talking to Howard about provision right, attrition can bounce up and down. I think we are really focused on record low year and we are not going to rest on our lowers on that when we are focused on improving it going forward as well.
Richard Repetto – Sandler O’Neill: Then Matt, if the charges on the FHLB paying down at FHLB. The charges will much less than what we anticipated, if you have charges I think it was around in the $50 million range and you only retired half of what you did this quarter and this quarter the charges were almost half. So, I guess can you explain there is still $1.3 billion on the balance sheet, do you intend to pay more down and how did we think about the charges that you are going to have to offset to gains or whatever or what’s remain if you do that?
Matthew J. Audette – EVP and CFO: Sure, Rich. So, for the $1.5 billion we’ve done to-date, which is over the last six months, in our overall plans for deleveraging of $8.5 billion, we’ve completed the wholesale reductions that we were looking to do. So at this moment we don’t have any plans to further reduce that actively. Now over time that roughly $5.5 billion when you add in the repo that’s left it will naturally decline over time. We don’t have any plans to actively, to do anything else prepayment wise in that area.
Richard Repetto – Sandler O’Neill: Just a step back the $28 million charge versus like $52 million I think it was two last quarter, or $51 million?
Matthew J. Audette – EVP and CFO: Yeah, so why the difference in numbers?
Richard Repetto – Sandler O’Neill: Yeah.
Matthew J. Audette – EVP and CFO: So, it just all depends on which ones you prepay, right. For the very same reason that the $5.5 billion that’s left, if we were to do it all, it would come with a charge of north of $700 million. So it just depends on exactly which items that we terminated. They just have a different cost based on their coupons and the tenure that’s left over on the borrowing. So it’s not something that you would’ve been able to predict.
Richard Repetto – Sandler O’Neill: One last quick one, it’d be for Paul. What areas will you think your energy and your focus on near-term as you get introduced to E TRADE?
Paul T. Idzik – EVP and CEO: As I discussed with the Board before I joined, my focus is going to be on ruthless execution of that strategic plan. That’s what our shareholders are expecting, that’s what the Board’s expecting, as we have the employees and my colleagues teed up to do and it doesn’t take a rocket scientist to figure out that that’s where I’m going to spend my time.
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