By Jed Horowitz
NEW YORK Jan 30 The baby in E*Trade TV
commercials may soon boast that he got in on a hot Wall Street
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.