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Understanding E*TRADE’s Non-Interest Expenses

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Oct. 16 2017, Updated 10:40 a.m. ET

Compensation and benefits expenses

E*TRADE Financial (ETFC) reported total non-interest expenses of $701.0 million in 1H17 compared to $607.0 million in 1H16 for a 15% increase. This increase resulted mostly from rising compensation and advertising expenses. 

In 1H17, the company reported compensation expenses of $269.0 million compared to $251.0 million in 1H16, reflecting a 7% rise.

An increase in the number of employees following the OptionsHouse acquisition led to the rise in its compensation expenses in 1H17 compared to 1H16.

E*TRADE Financial’s return on equity was ~9.7% over the last 12 months (or LTM). Its peers (XLF) LPL Financial Holdings (LPLA), Lazard Limited (LAZ), and Goldman Sachs Group (GS) generated returns of ~25.5%, ~39.2%, and ~9.9%, respectively, on their equity on an LTM basis.

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Advertising and market developments

E*TRADE Financial’s advertising and market deveinglopment expenses rose 16% from $73.0 million in 1H16 to $85.0 million in 1H17. This increase occurred after the company initiated an advertising campaign in 2Q17.

E*TRADE’s clearing and servicing expenses rose 33% from $49.0 million in 1H16 to $65.0 million in 1H17. This increase resulted from the rise in trading volumes in 1H17 compared to 1H16.

E*TRADE Financial reported occupancy and equipment expenses of $56.0 million in 1H17 compared to $47.0 million in 1H16, which reflects an increase of 19%. This rise was primarily due to increased expenses incurred from several information security initiatives. 

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