In a bid to increase its customers’ access to U.S. IPO and follow-on equity offerings, E*TRADE Financial Corporation (ETFC) entered into a retail alliance with investment bank Jefferies LLC – a fully-owned subsidiary of Leucadia National Corporation (LUK). Through this agreement, E*TRADE customers will gain access to Jefferies’ underwritings of IPO and follow-on equity offerings.
With the aforementioned agreement, E*TRADE is looking to entice investors by offering assurance of access to IPOs that brokerage firms usually reserve for their eminent clientele. Most brokerage firms generally provide access to fresh issues of a newly traded company to favored institutions and affluent clients.
However, with this deal, E*TRADE offers its customers the opportunity to participate in a Jefferies offering if they conform to certain conditions and offer bids to buy at the offering price or higher.
E*TRADE is still recovering after an almost-fatal venture into mortgage lending prior to the 2008 financial crisis. The company’s efforts to reduce balance sheet risk appear to be promising in the long term. Also its decision to focus on core operations and exit the market making business during 2013 is expected to improve profitability further.
Notably, the brokerage firm ended 2013 with 3.0 million brokerage accounts, up 3% year over year. E*TRADE’s expertise as a primary brokerage firm is expected to be a foil for Jefferies’ Equity Capital Markets platform. The agreement is expected to help Jefferies in providing corporate clients with better service.
Even though benefits from such retail alliances in the past has been below expectations for other firms, we believe, it will be a significant top-line growth driver for E*TRADE, as there will be significant rise in the volume of equity offerings available to its clientele.
E*TRADE currently carries a Zacks Rank #2 (Buy). Some better-ranked investment brokerage firms include Investment Technology Group Inc. (ITG) and LPL Financial Holdings Inc. (LPLA), both carrying a Zacks Rank #1 (Strong Buy).