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ETrade Morphs into a Bank
Reuters
9:00 a.m. 12.Jan.99.PST
Internet brokerage ETrade Group said on Tuesday it agreed to take a 28
percent stake in an online investment bank, EOffering, which aims to
take small companies public.
Shares of ETrade, the second-biggest online brokerage, surged US$14.50,
or 16 percent, to $103 in late morning Nasdaq trading.
ETrade (EGRP) said it took on Sandy Robertson, the former chief
executive of San Francisco investment bank Robertson Stephens, as a
partner. Together, ETrade and Robertson are investing in EOffering, a
company founded by Walter Cruttenden, who was one of the founders of
investment bank Cruttenden Roth. Cruttenden will remain president of
EOffering in Newport Beach, California.
ETrade's move signals that Internet brokerages are making inroads into
the most profitable part of the securities business: investment banking.
They've already taken a big slice of the securities industry's
stock-trading commission revenue.
Another virtual investment bank, Wit Capital of New York, last summer
hired a slew of heavyweight investment bankers to break into the initial
public offering business.
ETrade, which participated in 25 IPOs last year, aims to grow the
underwriting business by focusing on stock offerings of US$25 million to
$50 million by small companies. The pitch is two-fold: It will charge
lower underwriting fees than traditional investment banks, and it will
offer a chance for Internet companies to distribute their stock to their
Web-based customers. Down the road, ETrade plans to offer debt offerings
and private placements.
ETrade will own about 28 percent of the venture, and has an option to
increase its stake to 51 percent. Robertson will not take an active
management role in EOffering until his current non-compete agreement
with BancBoston runs out in 12 months. BancBoston last year bought
Robertson's old company from BankAmerica.
The company intends to distribute up to 50 percent of every stock
offering to online retail investors. ETrade customers will generally
have first dibs for these shares. The remaining portion of the offering
will be distributed to institutions through the company's planned
institutional sales group. |
