E-Trade Canada's $4.5b could double Scotiabank's online brokerage presence. Toronto-based Bank of Nova Scotia (Scotiabank) has agreed to buy New York-based E-Trade Financial's Canadian operations. The deal stands to double Scotiabank's footprint in Canada's online brokerage business, and help E-Trade raise some much-needed cash.

"Online brokerage is playing an increasingly significant role in wealth management as more Canadians are using online investment solutions, and many are becoming more active traders," says Chris Hodgson, Scotiabank's head of personal banking.

E-Trade Canada has about $4.5 billion in assets under management and about 190 employees.

Growth opportunity

The acquisition builds on Scotiabank's 2007 purchase of Montreal-based online broker-dealer TradeFreedom Securities for an undisclosed amount.

E-trade Canada, like the much smaller TradeFreedom, is meant to complement products and services offered through the online unit of ScotiaMcLeod, Scotiabank's retail-brokerage business, according to Hodgson.

The deal includes E-trade Canada's institutional business.

Scotiabank's president and CEO Rick Waugh calls the acquisition of E-Trade Canada "an excellent growth opportunity that will build on Scotiabank's strong position as a leading online investing solution."

Streamlining

Scotiabank says it's paying $442 for E-Trade Canada (and those are U.S. dollars). Cash-strapped E-Trade says it's getting more like $500 million in the deal.

E-Trade is suffering because it started making residential-mortgage loans at the start of the housing bubble in 2003. It got into that line after seeing much of its market capitalization evaporate in the dot-com meltdown of 2000 and 2001.

Last December, as its stock plummeted and amid rumors the company faced bankruptcy, E-Trade came out with a plan cut costs by $360 million by streamlining "certain corporate functions to reduce expenses" and selling "assets with high market demand" that aren't part of its core business.

New York-based E-Trade subsequently said it expected to reduce its debt by $700 million this year in debt-for-equity exchanges.

In February 2008 E-Trade agreed to sell RAA Wealth Management, a Dallas-based investment advisory for airline crewmembers, to Plano, Texas-based PHH Investments.

E-Trade had purchased RAA about 18 months before that.

"We continue to make solid progress against our 2008 turnaround plan by monetizing non-core assets to generate capital while delivering consistent organic growth in the retail business," says E-Trade's CEO Donald Layton. -FWR

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