UPDATE 1-E*Trade to give clients access to IPOs from Jefferies

Thu Jan 30, 2014 6:30pm EST

By Jed Horowitz

NEW YORK Jan 30 (Reuters) - The baby in E*Trade TV commercials may soon boast that he got in on a hot Wall Street IPO.

E*Trade Financial Corp said Thursday it formed a "retail alliance" giving its customers access to initial public offerings and follow-on offerings underwritten by middle-market investment bank Jefferies LLC.

Jefferies is not Wall Street's biggest underwriter of newly public companies, but E*Trade is betting that it can score points with investors by guaranteeing access to IPOs that brokerage firms normally reserve for their best customers.

Getting in on the ground floor of a newly traded company does not guarantee a quick profit, as investors learned with the disastrous IPO of Facebook in 2012. However, many so-called retail investors are frustrated when they cannot get access to popular new issues that their brokerage firm is doling out to favored institutions and wealthy clients.

E*Trade President Navtej Nandra said in a prepared statement that any client, regardless of account size or length of relationship with the broker, can participate in a Jefferies offering if they meet suitability criteria and submit bids to buy at the offering price or higher.

The discount brokerage firm, which is recovering from a near-fatal venture into mortgage lending in the years leading up to the 2008 financial crisis, said customers can monitor offerings through customized alerts and make offers through its on-line New Issue Center. Shares are allocated according to "rules-based" criteria that gives every eligible participant equal access, a spokesman said.

Jefferies, a subsidiary of Leucadia National Corp that focuses on raising capital for media, real estate investment trusts, healthcare and financial firms, ranked 13th last year as a global underwriter of IPOs, with 33 deals and a 1.9 percent market share, according to Thomson Reuters data.

In the United States, where E*Trade customers are most active, Jefferies was the 11th largest underwriter with 20 deals and a 2.6 percent market share.

Jefferies Chief Executive Richard Handler said in a prepared statement that the arrangement with the discount broker should enhance its ability to get deals from corporate issuers. Companies often prefer Mom-and-pop investors who add stability to share prices because they trade less opportunistically than more sophisticated clients such as mutual funds.

Jefferies has a small wealth management unit, with fewer than 300 brokers.

E*Trade, which is recovering from a near-fatal venture into mortgage lending in the years leading up to the 2008 financial crisis, ended 2013 with 2.99 million brokerage accounts, up 3 percent from a year earlier. The firm, which last year installed a new team of executives, is focusing on cutting its loan portfolio and building new services for retail investors.

E*Trade rivals such as Charles Schwab Corp have tried such arrangements in the past with larger firms than Jefferies, with little success. Brokers at big firms that want shares for their own customers are reluctant to see their investment bankers allocate them to competitors.

Spokespeople at Schwab and TD Ameritrade Holdings, the largest discount brokerage firms, did not immediately return requests for comment.

Spokesmen at Jefferies and E*Trade declined to comment on details of the pact, including whether the discount broker is guaranteed a percentage of each new Jefferies deal.

Shares of E*Trade, which have climbed 91.9 percent in the past year, closed up 2.3 percent Thursday at $20.35.

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