While I agree with you about the 100,000 accounts probably amounting to less than say, 50k unique customers, some of them who may already have an E*Trade account or may close their WitCapital account...the cost of acquisition is not really relevant. True, E*Trade did buy 2Million shares of WITC, but they did so to say, "Hey, we believe in the future of Wit Capital" not to "purchase" customers. In essence, the equity purchase of WITC stock will remain liquid in EGRP's portfolio, so theoretically, as long as WITC stock stays at 10 1/4, EGRP will have paid nothing for the additional customers.
The true winner in the deal is WitCapital, as now they have a much larger customer base to throw around in the Investment Banking world, which should in turn make the Investment bank more desireable to hire as a partner. That in turn will bring in more business, which should make them even more profitable (considering also that they won't have to support their brokerage operations now). E*Trade, with it's $110 million stake in WITC will see to it that the relationship succeeds and now have a partner in the Investment Banking world. Remember Goldman Sachs has a 100% interest in the Class B shares of WITC, and now you can see that WITC has support from both the leaders in old and new finance arenas.
I see this as a WIN-WIN situation, except for, as you point out, current Wit Capital customers who have now been "forced" to go with E*Trade. But even if 10,000 decide to stay with E*Trade, it still will be a $0 incremental cost to EGRP.
Mark |
