21 September 2016 Americas/United States Equity Research Brokerage

E*TRADE Financial (ETFC) Rating OUTPERFORM Price (19-Sep-16,US$) 28.49 REINSTATEMENT Target price (US$) 33.00 52-week price range 30.73 - 20.23 Market cap (US$ m) 7,797.29 Better Off Alive – Takeout Dis- Enterprise value (US$ m) 7,797.29 *Stock ratings are relative to the coverage universe in each synergies Underappreciated analyst's or each team's respective sector. ¹Target price is for 12 months. ■ Reinstating Coverage with an Outperform Rating based on return Research Analysts prospects relative to our $33 per share target price (old: $30). We were Christian Bolu previously Restricted on E*Trade shares owing to Credit Suisse’s role as an 212 538 9805 advisor to E*Trade on a recent acquisition. [email protected] ■ Where To From Here? The E*Trade story is at another critical inflexion Richard Fellinger point–-the lack of core business growth resulted in the ouster of the CEO last 212 325 7909 [email protected] week; the new management team has effectively been set an implicit target Hoang Nguyen of 2-3% incremental business growth or "we’ll consider that this company is 212 325 3357 better in other people’s hand in terms of shareholder value". We take a [email protected] closer look at three strategic options for the company–1) drive growth organically 2) drive growth via a scale or capabilities acquisition and 3) sell the company. We conclude shareholder value is best served by driving growth via the right strategic acquisition. ■ Thoughts on a E*trade Sale–TD Ameritrade/Charles Schwab Takeout Feasible but with Challenges. The lack of a robust strategic rationale for TD Ameritrade/Charles Schwab to take-out E*Trade coupled with significant revenue dis-synergies (mainly from loss of high margin net interest income) means that a financially rationale takeout price for E*Trade would offer little to no premium to current prices–-a scenario we doubt would be acceptable to E*trade shareholders. We define financially rationale as a deal where ROIC is above the buyers cost of capital. ■ Raising Estimates and Target Price. We are raising our 2018 estimate to $1.90 (old: $1.80) to account for the OptionsHouse acquisition. We raise our target price to $33 (old: $30) based on our estimate of ~$2.00 in long term earnings power and 15x warranted multiple plus ~$2.60 per share of DTA. Share price performance Financial and valuation metrics

3 5 Year 12/15A 12/16E 12/17E 12/18E EPS (CS adj.) (US$) 1.17 1.66 1.70 1.90 3 0 Prev. EPS (US$) - 1.65 - 1.80 P/E (x) 24.4 17.1 16.7 15.0 2 5 Relative P/E (%) 116 84 90 88 2 0 Revenue (US$ m) 1,740.0 1,901.5 2,090.8 2,141.8 O ct - 1 5 Jan - 1 6 A p r - 1 6 Ju l- 1 6 Preprovision Income (US$ m) 537 680 782 830 Book Value (US$) 19.90 21.80 24.53 26.76 ET FC.O Q S& P 5 0 0 IN D EX Tangible book value (US$) 14.65 16.34 18.73 20.63 On 19-Sep-2016 the S&P 500 INDEX closed at 2139.12 ROE (%) 6.2 7.9 7.7 8.2 Daily Sep21, 2015 - Sep19, 2016, 09/21/15 = US$26.62 ROA (%) 0.75 0.95 0.87 0.80

Quarterly EPS Q1 Q2 Q3 Q4 Book Value (Next Qtr., US$) 21.5 Tangible BV (Next Qtr) (US$) 15.90 2015A 0.29 0.24 0.34 0.30 P/BV (x) (Next Qtr.) 1.35 P/TBV (Next Qtr) (x) 1.8 2016E 0.43 0.48 0.38 0.38 Dividend (current, US$) - Shares Outstanding (m) 274 2017E - - - - Dividend yield (%) - Source: Company data, Thomson Reuters, Credit Suisse estimates

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 21 September 2016

■ The Growth Playbook–E*Trade/LPL Financial a Compelling Prospect. In our view, the lack of scale and a credible asset gathering strategy have been the key impediments to long term structural growth at E*Trade. Thus view the acquisition of an RIA platform or a sizeable brokerage franchise as a way for E*trade to drive growth and capitalize on the secular changes occurring in the retail brokerage industry. We weigh the strategic merits and financial feasibility of two merger scenarios to potentially look out for: E*Trade/LPL Financial and E*Trade/Scottrade. Our analysis suggests a deal for LPLA would be both strategically and financially compelling–-it would create a scaled RIA/active trader powerhouse that would be a formidable competitor to TD Ameritrade/Charles Schwab and be significantly accretive to E*Trade shareholders.

Figure 1: CS Strategy Tree Strategy Options Warranted Comments Share Price  Integrate OptionsHouse; drive 2-3% extra Standalone >$33 business growth  CS View: Growth target difficult to achieve given the lack of an RIA franchise Acquire  Creates RIA / Active Trader powerhouse RIA / Brokerage $41  CS View: PF company could earn ~$2.70 per Platform share in 2019 and we ascribe a 15x multiple  TD Ameritrade buys E*Trade Sell the Firm $28  CS View: Revenue dis-synergies a significant headwind

Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 2 21 September 2016

Key Questions Facing E*Trade as a Standalone Company #1. Can E*trade Add 2-3% Growth Organically? ■ Gauging E*Trade's Business Growth Underperformance. We benchmark ETFC core business drivers to peers. On most metrics, ETFC has underperformed peers over the last 5 years. Specifically, ETFC DARTs, brokerage accounts, client asset and margin lending have underperformed peers by 470 bps / 327 bps / 290 bps / 23 bps respectively.

Figure 2: ETFC Has Lagged Industry Growth Retail brokers key growth metrics – FY 2010 to FY 2015 DARTs Brokerage Accounts Client Assets Margin Balance 1-Yr 3-Yr 5-Yr 1-Yr 3-Yr 5-Yr 1-Yr 3-Yr 5-Yr 1-Yr 3-Yr 5-Yr ETFC -8% 4% 1% 2% 3% 4% -1% 13% 10% 6% 13% 12% AMTD 4% 9% 4% 5% 5% 4% 3% 13% 12% 15% 14% 12% SCHW -2% 1% 2% 4% 4% 4% 1% 10% 9% 12% 12% 11% IBKR 14% 16% 11% 18% 16% 16% 19% 27% 25% 1% 20% 19% TradeStation -19% -11% 9% N/A N/A N/A 0% 4% 9% 1% 10% 6% Peer average -2% 4% 5% 7% 7% 7% 4% 13% 13% 7% 14% 12% ETFC vs peers (bps) -575 13 -470 -504 -359 -327 -516 -57 -290 -112 -80 -23

Source: Company data, Credit Suisse estimates

■ Who is Growing & Why? We note that AMTD & IBKR have enjoyed the best brokerage growth over the last 5 years. We believe AMTD's growth has largely been driven by the strength of its institutional business (RIA custodial platform) while IBKR's low cost value proposition and global footprint has helped power its growth. ■ Can ETFC Replicate Peer Growth? Executive chairman, Roger Lawson has effectively set an implicit target to his management team to drive an additional 2-3% business growth over the next few years. We note that even post the OptionsHouse acquisition (see more below), ETFC lacks the RIA platform or low cost value proposition that have powered AMTD and IBKR's growth. Thus we believe trying to drive incremental growth might prove difficult.

"We'd rather put in place a group of people that we thought could drive that 2% or 3% extra growth. And 2% or 3% makes a hell of a big difference in this industry in terms of growth rates across the key business driver metric" Rodger A. Lawson – Executive Chairman Sep. 14, 2016

E*TRADE Financial (ETFC) 3 21 September 2016

#2. Can OptionsHouse Drive Significant Growth? ■ Some Historical Context –A Look at Recent Online Broker Acquisitions. The strategy of acquiring a smaller derivatives orientated platform to bolster growth is a well-trodden path. Recall in 2009 TD Ameritrade acquired thinkorswim to bolster its derivatives capabilities, in June 2011 Japanese firm Monex acquired the highly regarded active trader platform TradeStation and in September 2011 Charles Schwab acquired options specialist optionsXpress. Best we can tell (based on looking at DARTs growth rates post acquisition), thinkorswim has proven to be successful while growth at optionsXpress / TradeStation has stagnated. We believe thinkorswim/AMTD was successful because: 1) Complementary customer base: TD Ameritrade (like thinkorswim) already had a significant number of active trader customers–thus cross sell post acquisition was easier. 2) Integration: thinkorswim was fully integrated into the Ameritrade platform 21 months post deal closing. Based on press reports (see link) optionsXpress was still not fully integrated into the Schwab 4 years post acquisition 3) Education efforts. While hard to put metrics around, we note that thinkorswim was known for its extensive education efforts. Given the complexities of trading options we believe a strong education offering has been key to growth at TD Ameritrade especially in increasing option usage in the RIA community

Figure 3: AMTD / thinkorswim Has Proven More Successful Than Other Mergers DARTs : Acquisition date vs. 2Q16

600 +22% 500 462 -10% -14% 379 370 400 320 323 289 279 300 200 100 0 Acq. Date 2Q11 2Q16 Acq. Date 2Q16 Acq. Date 2Q16 (4Q09) (2Q11) (3Q11) AMTD / ThinkorSwim Monex / TradeStation SCHW / OptionsXpress

Source: Company data, Credit Suisse estimates

■ OptionsHouse–ThinkorSwim or OptionsXpress? We see some tailwinds (fast integration) that could help E*Trade translate OptionsHouse growth onto the wider E*Trade platform, that said we are cognizant of some broader structural headwinds (no growth/weak growth in the options/active trader industry). o The Potential For Quick Integration. We suspect under the leadership of Chief Brokerage Officer Mike Curcio, OptionsHouse could be quickly integrated into the E*Trade platform. We note that in Mr. Curcio's previous role, he led the merger and subsequent integration of OptionsHouse and tradeMonster (integration was done in under a year). While we are cognizant that OptionsHouse/tradeMonster integration was less complex (given smaller number of accounts and both firms used the same clearing infrastructure - Apex clearing) we do believe the integration experience will be valuable to E*Trade and could speed up the process.

E*TRADE Financial (ETFC) 4 21 September 2016

o Different Customer Base. Based on trades per account, we note that E*Trade has very different customer base than OptionsHouse (46 trades per year at OptionsHouse vs. 12 at E*Trade – this is indicative of a more active trader base at OptionsHouse). That said E*Trade has a more active customer base than Schwab which could mean E*Trade customers are more likely to adopt the active trader tools from OptionsHouse. o Active Trader/OptionsHouse Market Growth Stagnant. While OptionsHouse growth has been strong, we note that growth has come off a small base (OptionsHouse DARTs of 28K represents 2-3% industry market share). In addition we note that active trader industry activity as well as overall U.S. options growth has been stagnant over the last few years. Specifically, over the last 5yrs U.S. industry options average daily volumes had a CAGR of -2%.

Figure 4: E*Trade & OptionsHouse Have Different Figure 5: US Options Growth Has Stagnated Customer Base US consolidated options average daily volumes Annualized trades per account

70 ADV (mil) 62 More active 20 40% 60 trader oriented 5Yr Avg. Growth 30% 50 46 15 40 20% CAGR 27 10 30 1Yr : -3% 5Yr : -2% 10% 20 17 12 5 10 Yr : 7% 0% 10 7 15 Yr : 11% 30 Yr : 9% 0 0 -10%

Thinkor- Options- options AMTD ETFC SCHW 3 6 9 2 5 8 1 4 7 0 3 6 9 2 5 7 7 7 8 8 8 9 9 9 0 0 0 0 1 1 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0

swim House Xpress 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2

AMTD/ETFC/SCHW based on 2Q16, all others as at acquisition date. Source: Company data, Source: OCC Credit Suisse estimates

Figure 6: Active Trader Growth Has Declined Over Recent Years TradeStation's key metrics and growth

200 80% 4.0 40% 90 40% DARTs (000) Yr-Yr Client Assets ($Bn) Yr-Yr Margin Balance ($M) Yr-Yr 3.5 80 60% 160 3.0 70 40% 20% 60 20% 120 2.5 50 20% 2.0 40 80 1.5 0% 0% 30 0% 1.0 40 20 -20% 0.5 10 0 -40% 0.0 -20% 0 -20% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015

Source: Company data, Credit Suisse estimates

■ OptionsHouse FCM Could Support Near Term Growth. Futures trading is gaining popularity with retail investors. OptionsHouse became a non-clearing futures

E*TRADE Financial (ETFC) 5 21 September 2016

commission merchant (FCM) in June 2016, which will give its customers greater access to futures product. We expect this to support growth over the intermediate term.

#3. What's Needed To Drive L/T Growth? An RIA Platform Over the last 5 years, RIAs has been the fastest channel of growth in the U.S. retail brokerage industry – 5 year asset CAGR of 12% for RIAs which is 500 bps above the industry growth CAGR. AMTD, SCHW & LPLA have enjoyed strong asset inflows from their RIA platforms. We believe ETFC will have to enter the RIA channel (most likely through an acquisition) to drive growth.

Figure 7: U.S. Retail Brokerage Client Asset Growth By Channel–RIA Fastest Growing Channel

Assets Retail Brokerage Firms Channels $ Tr % of Total 5Yr CAGR AMTD ETFC LPLA SCHW RJF SF BAC MER Dually Registered $1.6 9% 8% RIA $2.2 12% 13%

r

e IBD $2.1 12% 9% t

s Independent $5.9 33% 10% a F Self Directed $1.6 9% 8% g n

i Bank B/D $1.2 7% 10% w

o Regional B/D $2.6 14% 7% r

G Insurance B/D $0.6 3% 4% Captive Broker Dealer $4.4 24% 8% Wirehouse $6.1 34% 5% Industry $18.1 8% KEY High Market Share Low Market Share

Self-directed based on ETFC, AMTD and Schwab Investor services client assets. Source: Cerulli, Credit Suisse estimates

E*TRADE Financial (ETFC) 6 21 September 2016

Evaluating Acquisition Opportunities The U.S. wealth management industry is highly fragmented and characterized by many small subscale players. Over the coming years we believe secular trends such the continued growth of passive investing (read: pricing pressure), low rates, higher cost from the DoL rule and fee pressure from technology focused players (robo advisors, etc) will drive significant consolidation. Within this section of the note, we provide our framework for evaluating transactions in the Retail Brokerage space. Strategic Rationale

Figure 8: Gauging the Drivers of Acquisition

Least Most ETFC ETFC Consolidation Rationale Benefits Compelling Compelling LPLA Scottrade

Regulation/DOL Realize Scale efficiencies Drive more free cash flow

Registered Investment Advisor (RIA) Enter/ New Businesses Fee-based Platform/Roboadvisory Why Merge? Better Cash Monetization (Bank) Franchise Optimization Regional Expansion

Scarcity value of retail brokers Market Share Grab Pursue/digest larger acquisitions

Source: Credit Suisse estimates

■ Realize Scale Efficiencies. Retail brokers are low capital intensive business models that allow for significant synergies and increased free cash flow generation through scale. Gaining scale is particularly important in the current competitive landscape where increased regulatory burdens and pricing pressure disproportionately squeezes smaller players. The DoL's Fiduciary Standard rule – which will be phased in beginning April 2017 – and the potential SEC Fiduciary rule to follow will only accelerate the need to consolidate in our view as it adds another element of compliance oversight and hastens the active to passive trend that is destructive to broker revenues on client assets (ROCA). ■ Enter New Businesses. One way retail brokers can get ahead of the DoL rule is by growing fee-based business, which is one reason we expect the registered investments advisors (RIAs) to continue to enjoy outsized growth. Fee-based businesses (particularly ETF advisory) also offer a more defensible revenue stream. Robo advisory is an emerging area of focus for retail brokers as we believe firms are looking for a way to profitably service smaller accounts as regulatory burdens increase. ■ Franchise Optimization. Companies can evolve their business models to fully monetize their existing customer assets or their infrastructure. An area of focus is client cash monetization–-Charles Schwab, E*Trade and Stifel Financial Corp are all currently in the process of better monetizing client cash via their bank subsidiaries. Retail brokers without bank subsidiaries could get access to a bank via an acquisition. Regional expansion is another example and we have seen a number of deals lately, (Raymond James and Stifel for example) where scaled regional firms have sought to leverage their infrastructure/brand by expanding into new markets. E*TRADE Financial (ETFC) 7 21 September 2016

■ Market Share Grab. We view this rationale as least compelling, but in areas of the financial world where true organic growth is scarce, acquirers can grow – and steal market share – through combinations. Financial Implications – Precedent Transactions Below we have enclosed a snapshot of precedent transactions within the U.S. online brokerage space. Historically, online brokerage transactions have been completed at a valuation equivalent to ~3K per brokerage account. We would note that a majority of precedent deals were completed in a more robust operating backdrop, with significantly higher trading volume growth expectations. With regard to expense synergies, these are typically targeted at approximately 50% of the target’s expense base.

Figure 9: Online Broker M&A Transactions As stated

Closing Deal Cash/ Client Assets Price/ Exp % Date Acquirer Target Value Stock Accounts ($Bn) Account Synergieosf Exp Base Sep-16 ETFC OptionsHouse $750 Cash/Debt 154,000 $3.6 $4,870 $49 60% Jun-16 ALLY TradeKing $275 Cash 260,000 $4.5 $1,058 -- -- Sep-11 SCHW optionsXpress $714 Stock 397,400 $8.4 $1,797 $20 13% Jun-11 Monex TradeStation $402 Cash 47,853 $2 $8,401 NA NA Nov-09 AMTD Thinkorswim $606 Combined 200,000 $3 $3,030 $17 30% Jan-06 AMTD TD Waterhouse USA $2,900 Stock 2,279,000 NA $1,272 $378 59% Nov-05 ETFC BrownCo $1,600 Cash/Debt 186,000 NA $8,602 $63 53% Oct-05 ETFC Harrisdirect $709 Cash/Debt 425,000 NA $1,668 $114 71% Oct-04 AMTD Online accounts of JB Oxford $26 Cash 45,000 NA $578 -- -- Jul-04 AMTD Investex Securities Group, Inc. NA NA 1,000 NA NA -- -- Feb-04 AMTD BrokerageAmerica $1 NA 11,500 NA NA -- -- Jan-04 AMTD Bidwell & Company $55 Cash 100,000 $5.0 $550 -- -- Jun-03 AMTD Mydiscountbroker.com $4 Cash 16,500 NA $255 -- -- Sep-02 AMTD Datek Online $1,289 Stock 876,000 NA $1,471 $174 55% Sep-01 AMTD National Discount Brokers (NDB.com) $154 Stock 319,000 $6.3 $483 -- -- Apr-01 AMTD TradeCast $67 Stock NA NA NA -- --

AVERAGE $2,618 49%

Source: Company data, Credit Suisse estimates

Financial Implications – Assumptions ■ Deal value/premium paid: Lack of public deals historically gives us little data to assess likely premiums to current share price in a deal. For deals lacking strong strategic rationale, we are assuming deal value will be at a level to drive return on invested capital (ROIC) higher than cost of capital. ■ Funding mix: We assume firms will use the optimal capital structure to drive financial accretion with the constraint on use of debt being maintaining current credit ratings.

E*TRADE Financial (ETFC) 8 21 September 2016

#1. E*Trade x LPL Financial Strategic Rationale – RIA Power house; Significant Cash Optimization While ETFC-LPLA combination may not be top of mind to investors, we believe there is compelling strategic rationale and is supported by strong earnings accretion. Strategically, the combination would boast a fast growing RIA platform, and in house robo-advisory, specialist options technology and a bank subsidiary. Packaged together it would make it a formidable competitor to AMTD/SCHW but also given the combined firm product firepower to consolidate smaller independent broker dealer firms. Financially, we see low risk of revenue synergies from moving LPLA's cash sweep assets into E*Trade Bank. LPL Financial doesn't have a captive bank so its $29Bn of cash sweep assets are earning just 56 bps through its money market/insured bank deposit sweep vehicles. With E*Trade's reinvestment rates at 150-175 bps there is $270-$350 million that could be realized over time through the combination. Risks. We concede this deal carries some degree of risk and model modest expense synergies (we estimate 10% of LPLA cost base) given the different nature of the business models. Also, both companies are going through material regulatory issues through 2017/18 (LPLA – DoL Fiduciary Standard, ETFC – crossing $50 Bn SIFI) which could affect timing of when a deal could likely come together. Lastly, LPLA currently has net tangible asset of -$985, thus an additional capital raise could be needed to ensure the pro- forma entity is well capitalized. Financial Assumptions – 100% Stock Deal; Limited Expense Synergies Utilizing our base case transaction assumptions, we estimate an ETFC-LPLA merger would be accretive from year one on a cash basis to ETFC shareholders (12%, 16%, 26% from 2017-2019 and 17% ROIC by year three of deal completion) owing to revenue synergies through cash optimization on LPLA's cash sweep assets. Upside would exist primarily to the extent we are underestimating the expense synergy possibilities and other revenue synergies created through the deal. See Figure 10 for merger model details.

E*TRADE Financial (ETFC) 9 21 September 2016

Figure 10: ETFC X LPLA Merger Model Summary US$ in millions, unless otherwise stated

Transaction Summary ($ mil) Cash EPS Bridge (2019E)

Acquirer: E*Trade Financial (ETFC) 0.13 Target: LPL Financial (LPLA) 0.64 0.63 2.72 Offer price per share: $39 0.73 2.16 0.00 Premium to current 30% 0.11 Valuation 2016 P/E 20.6x 2017 P/E 20.0x

Assumed closing date: Jan-17 Total consideration: $3,511 USD ETFC Cash EPS LPLA Earnings Revenue Expense Share Dilution Cost of Debt Other ETFC-LPLA Cash Funding: Stock $3,511 100% Synergies Synergies EPS Debt $0 0% Cash $0 0% Cash EPS Accr/Dil (bar) and ROIC (circle) Contribution Analysis & Ownership (2017E) Expense Synergy ($ mil) 30% 100% Total: $101 Phase-in: 26% 31% 10% of LPLA's 2017E 25% 25% 80% 41% 37%

baseline expenses 2018E 50% 20% 60% 16% 2019E 100% 17% 15% 12% 40% Leverage Capacity as of Y/E 2017E 69% 13% 59% 63% ETFC LPLA Pro-forma 10% 10% 20% Debt $993 $1,882 $2,875 5% EBITDA $885 $558 $1,677 0% Revenue EBITDA Ownership Debt-to-EBITDA 1.1x 3.4x 1.7x 0% 2017E 2018E 2019E ETFC LPLA

Source: Company data, Credit Suisse estimates

■ Premium & Valuation. Total deal value of $3.5 billion. This implies a value of $39.03 per LPLA share, a 30% premium to yesterday's closing price. This equates to 15x LPLA's 2017 EPS estimates. ■ Consideration & Funding. We assume a 100% stock deal given already high leverage and weak pro-forma capital ratios (owing to LPLA negative net debt position). ■ Revenue Synergies. As discussed, the key to this deal in our view is the revenue synergies realized through the optimization of LPLA's client cash. Other possible revenue synergies include selling E*Trade Robo advisory to LPLA client base and leveraging OptionsHouse to drive increased options usage amongst LPLA financial advisers. ■ Expense Synergies. We estimate ~$100 million, equivalent to about 10% of LPLA’s 2015 baseline operating expense base (excluding interest and production expense) as we assume expense savings would be limited to corporate overhead as well as some infrastructure cost. We assume a phase-in from 2017-2019 (25% / 50% / 100%).

E*TRADE Financial (ETFC) 10 21 September 2016

Figure 11: ETFC X LPLA Contribution Analysis Based on 2017E, US$ in millions, unless otherwise stated Unadjusted % Contribution ETFC LPLA Pro-forma ETFC LPLA Commissions/Transactions $499 $648 $1,147 44% 56% Advisory fees 0 180 180 0% 100% Asset-based 0 420 420 0% 100% Fees and service charges 241 0 241 100% 0% Gain on sale of loans/securities 40 0 40 100% 0% Other 42 42 84 50% 50% Fee revenues 822 1,289 2,111 39% 61% Spread revenues 1,268 168 1,436 88% 12% Net revenues 2,091 1,457 3,548 59% 41% Expenses 1,309 1,161 2,470 53% 47% Provision for credit losses 0 0 0 NA NA Pretax Income 782 296 1,078 73% 27% Taxes 297 117 414 72% 28% Preferred dividend 29 0 29 100% 0% Net Income - adjusted $455 $179 $635 72% 28%

Revenue Mix Commissions/Transaction 24% 44% 32% Advisory fees 0% 12% 5% Asset-based 0% 29% 12% Fees and service charges 12% 0% 7% Gain on sale of loans/securities 2% 0% 1% Other 2% 3% 2% Fee revenues 39% 88% 60% Spread revenues 61% 12% 40% PROFITABILITY TRENDS Operating Pretax margin 37.4% 20.3% 30.4% Net Margin 21.8% 12.3% 17.9% Tax Rate 38.0% 39.5% 38.4%

LPLA commissions/transactions and advisory fees are net of dealer payouts. Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 11 21 September 2016

#2. E*Trade x Scottrade Strategic Rationale – Scale Build in Bank & Broker We believe an E*Trade-Scottrade combination would have solid strategic merit for both companies. E*trade and Scottrade are similarly sized companies and the added scale puts it on better competitive footing against the big 3 of Schwab, Ameritrade, and Fidelity. The two companies also bring complementary capabilities to the table as Scottrade offers a small registered investment advisor (RIA) custodial business, Investment Management services and a nationwide branch network (500 locations for Scottrade vs 30 for ETFC) which should help E*trade increase its presence in the investment services/retirement space. E*trade has a more highly regarded brokerage platform, particularly following the acquisition of OptionsHouse, which can be introduced to Scottrade's clients. Scottrade currently has three brokerage platforms – its website, an active trading platform (Scottrade Pro) powered by Interactive Brokers, and Scottrade Elite powered by Recognia. Financial Implications – Expense Synergies Drive Long-term Accretion Utilizing our base case transaction assumptions, we estimate an E*trade-Scottrade merger would be slightly dilutive to ETFC shareholders in the first year of deal closing, and 5% and 18% accretive in years 2018-2019 owing to expense synergies. Upside would exist primarily to the extent we are underestimating expense synergy realization phase-in and possible revenue synergies from cross-selling and trade-lift. See Figure 12 for merger model details.

Figure 12: E*Trade X Scottrade Merger Model Summary US$ in millions, unless otherwise stated

Transaction Summary ($ mil) Cash EPS Bridge (2019E) Acquirer: E*Trade Financial (ETFC) 0.50 Target: Scottrade Financial 0.75 2.54 0.59 Scottrade net income (2016E) $175 0.08 0.10 2.16 0.10 Deal Multiple 17.5x Total transaction value (USD, bn) $3,065

Assumed closing date: Jan-17 Total consideration: $3,065 USD Funding: Stock $1,839 60% ETFC Cash EPS Scottrade Revenue Expense Share Dilution Cost of Debt Other ETFC-Scottrade Earnings Synergies Synergies Cash EPS Debt $1,226 40% Cash $0 0% Cash Earnings Accr/Dil (bar) and ROIC (circle) Contribution Analysis & Ownership (2017E)

20% 100% Expense Synergy ($ mil) 18% 90% 22% 18% 34% 15% 80% Total: $254 Phase-in: 70% 60% 30% of Scottrade's 2017E 25% 10% 50% baseline expenses 2018E 50% 8% 40% 78% 82% 66% 2019E 100% 5% 5% 30% Leverage Capacity as of Y/E 2017E 3% 20% 5% 10% 0% ETFC Scottrade Pro-forma 0% Debt $993 $375 $2,594 -1% Revenue EBITDA Ownership EBITDA $885 $244 $1,065 -5% 2017E 2018E 2019E ETFC Scottrade Debt-to-EBITDA 1.1x 1.5x 2.4x

Source: Company data, Credit Suisse estimates

■ Premium & Valuation. Total deal value of $3.1 billion. This implies a 17.5x price multiple on Scottrade's 2016 estimate net income of $175 million. We are assuming deal value is equivalent to an amount that drives ROIC to meet cost of capital. Since Scottrade is a private company and there are strategic benefits to a deal, ascribing a valuation is particularly challenging.

E*TRADE Financial (ETFC) 12 21 September 2016

■ Consideration & Funding. Per Moody's last credit opinion, debt-to-EBITDA levels above 2.5x could drive downwards rating pressure. We assume E*Trade will want to maintain its investment grade rating. Our funding mix assumes a mix of ETFC shares (60%) and $1.8 billion in newly issued debt (40%). We estimate the pro forma company would generate ~$1.1 billion in EBITDA in 2017 and hold debt of $2.6 billion, implying 2.4x leverage. ■ Revenue Dis-synergies. We are modeling in revenue dis-synergies to account for possible attrition in commissions, fees and service charges and other revenues. This adds some conservatism to our model and considers account attrition through the merger, Scottrade's lower commission schedule and various service charges. ■ Expense Synergies. ~$250 million, equivalent to 30% of Scottrade’s 2015 baseline operating expense base. Generally, there should be material synergies realized when combining two brokerage platforms giving their on-line, low capital intensive nature in addition to other redundancies such as corporate overlap and marketing. We assumed a slight discount to typical on-line broker deals (50%) given Scottrade's vast branch network. ■ Contribution Analysis–Increases Exposure to Transaction Revenues. On a combined basis, the pro-forma company we estimate the pro-forma company will generate ~32% of revenues from transaction related business; ETFC currently generates ~24% of revenue from transaction. This represents a clear strategic risk given the secular slowdown in trading and potential pricing pressure.

Figure 13: E*Trade X Scottrade Contribution Analysis Based on 2017E, US$ in millions, unless otherwise stated E*Trade - Scottrade Contribution Analysis (based on 2017E) Unadjusted % Contribution ETFC Scottrade Pro-forma ETFC Scottrade

Commissions $499 $512 $1,011 49% 51% Fees and service charges 241 1 242 100% 0% Principal transactions 0 -8 -8 0% 100% Gain on sale of loans/securities 40 20 60 67% 33% Other revenue 42 68 110 38% 62% Fee revenues 822 592 1,414 58% 42% Net interest income 1,268 487 1,755 72% 28% Net revenues 2,091 1,079 3,170 66% 34% Expenses 1,309 866 2,175 60% 40% Provision for credit losses 0 8 8 0% 100% Pretax Income 782 205 987 79% 21% Taxes 297 10 307 97% 3% Preferred dividend 29 0 29 100% 0% Net Income - adjusted $455 $195 $650 70% 30% Revenue Mix Commissions 24% 47% 32% Fees and service charges 12% 0% 8% Principal transactions 0% -1% 0% Gain on sale of loans/securities 2% 2% 2% Other revenue 2% 6% 3% Fee revenues 39% 55% 45% Net interest income 61% 45% 55% PROFITABILITY TRENDS Operating Pretax margin 37.4% 19.0% 31.1% Net Margin 21.8% 18.0% 20.5% Tax Rate 38.0% 4.9% 31.1%

Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 13 21 September 2016

E*TRADE Financial (ETFC) 14 21 September 2016

Evaluating Potential Buyers of E*Trade Should E*Trade management fail to achieve stated growth targets over the next few years, our sense is that the board is more open to a takeout than it has been in recent years. While we acknowledge that the retail brokerage industry shift towards asset gathering businesses and the secular decline of retail stock trading has greatly diminished E*trade's strategic value to the larger online brokers, we still see some financial merit to a takeout and peg acquisition value of E*Trade at $28 per share. In addition, we believe non-bank/non-broker players (Fidelity/Goldman/Edward Jones) could see strategic value in acquiring E*Trade's brokerage brand and/or bank subsidiary. Financial Considerations Lack of public deals historically gives us little data to assess likely premiums to current share price in a deal. For deals lacking strong strategic rationale, we are assuming deal value will be at a level to drive return on invested capital (ROIC) higher than cost of capital.

Figure 14: Estimated Cost of Capital for Retail Brokers

AMTD SCHW ETFC Debt 1,828 2,876 993 Equity 17,617 40,868 7,797 Enterprise Value 19,445 43,744 8,790 % Debt 9% 7% 11% % Equity 91% 93% 89% Cost of Debt 3.9% 3.3% 5.0% Cost of Equity 7.5% 8.4% 8.3% WACC 7.1% 7.9% 7.7% Assumptions Expected market return 6.00% 6.00% 6.00% Risk free rate 1.70% 1.70% 1.70% Tax Rate 38% 38% 38% Beta 1.3575 1.5466 1.5251

Risk free rate is 10Y Treasury. Beta is based on 3YrWkly. Cost of debt is weighted average fixed coupon. Cost of equity based on capital asset pricing model. Source: Thomson Reuters, Bloomberg, Company data, Credit Suisse estimates Who Are the Potential Buyers? We believe E*trade has three strategic assets, one of which must make sense to a buyer: (1) an established online retail broker (2) low cost retail deposits and (3) bank license. We group the universe of buyers into the following:

■ Online Retail Brokers: The major online retail brokers TD Ameritrade/Charles Schwab remain the most natural buyers of E*Trade’s retail brokerage operations and low cost retail deposits. That said, TD Ameritrade/Charles Schwab have focused their business models on building asset gathering businesses to combat the structural decline in retail trading activity and insulate against potential price wars. Given E*trade is largely levered to retail trading, we believe its strategic value to TD Ameritrade/Charles Schwab has greatly diminished. That said the cost savings from a combinations of retail brokerage platforms and the monetization of low cost deposits would still prove financially attractive. With regard to the banking license, the additional

E*TRADE Financial (ETFC) 15 21 September 2016

FDIC insurance for customers that come with an additional license could have strategic value for Schwab.

■ Non-Bank Wealth Managers: We believe the bank license and low cost retail deposits could have strategic value to non-bank wealth managers like an Edward Jones or Fidelity (the retail brokerage would also be a nice strategic fit for Fidelity). Faced with pressures from low rates, the bank license would allow these firms better monetize client cash balances. Perhaps the recent $2.5 Bn purchase of EverBank by investment manager TIAA-CREF underscores the growing strategic importance of banking capabilities.

■ Major Banks/Brokers. The single greatest impediment in a major brokerage house or bank acquiring E*Trade is the potential channel conflict inherent in integrating a discount brokerage alongside their existing financial advisors. That said for players without traditional financial advisors, E*Trade retail brokerage brand could prove strategically valuable. For example, Goldman Sachs' recent expansion into the tech- focused consumer space could be enhanced by E*Trade online brokerage operations.

■ Specialty Finance Firms: We think specialty finance firms could make strategic sense given their desire/need for low cost retail funding but we do not see them as natural owners/operators of E*Trade’s retail brokerage franchise. All in all, we view the larger online brokers as most natural buyers of E*Trade. Herein we assess the strategic rationale and financial implications of a takeout by TD Ameritrade and Charles Schwab.

E*TRADE Financial (ETFC) 16 21 September 2016

#3. TD Ameritrade x E*Trade Gauging Deal Structure We believe any potential TD Ameritrade /E*Trade transaction structure will be complicated by E*Trade Bank. Our proposed transaction structure assumes that: ■ AMTD retains certain legacy E*Trade balance sheet items core to the customer (i.e., margin loans, brokerage cash, stock loan/borrow) ■ AMTD closes E*Trade Bank and “sweeps” the bank's retail deposits to TD Bank under the existing IDA Agreement ■ AMTD will also sweep E*Trade's off balance sheet client cash to TD Bank under the existing IDA Agreement Figure 15: E*Trade Balance Sheet–The Brokerage Component vs The Bank Component As of 2Q16. US$ in millions, unless otherwise stated Current E*Trade Average Balance Sheet E*Trade Bank Balance Sheet E*Trade Balance Sheet (excluding bank) Loans 4,512 Loans 4,512 Margin receivables 6,502 Margin receivables 6,502 MBS, avail. for sale 13,503 MBS, avail. for sale 13,503 Other securities, avail. for sale -- Held-to-maturity sec. 15,354 Held-to-maturity sec. 15,354 Trading securities -- Cash & equivalents 1,589 Cash & equivalents 1,589 Segregated cash & investments 1,599 Segregated cash & investments 1,599 Stock borrow & other 363 Stock borrow & other 363 Interest-earning assets 43,422 Interest-earning assets 33,369 Interest-earning assets 10,053 Retail deposits 31,865 Retail deposits 31,865 Brokered cert. of deposit 0 Brokered cert. of deposit 0 Customer payables 6,913 Customer payables 6,913 Repurchase agreements -- FHLB advances & other borrowings -- Other borrowings 410 Other borrowings 410 Corporate debt 993 Corporate debt 993 Stock loan & other 1,345 Stock loan & other 1,345 Interest-bearing liabilities 41,526 Interest-bearing liabilities 31,865 Interest-bearing liabilities 9,661

Source: Company data, Credit Suisse estimates

Figure 16: E*Trade Income Statement–The Brokerage Component vs The Bank Component 2Q16 Annualized, US$ in millions, unless otherwise stated Current E*Trade Income Statement Current E*Trade Bank Income Statement E*Trade Income Statement (ex Bank) Net Interest Income 1,144 Net interest income 896 Net Interest Income 248 Non-Net Interest Income 712 Non-Net Interest Income (12) Non-Net Interest Income 724 Realized Gain on Securities 40 Realized Gain on Securities 58 Realized Gain on Securities (18) Net revenues 1,896 Net revenues 942 Net revenues 954 Operating expenses 1,180 Operating expenses 391 Operating expenses 789 Pre-provision pretax income 716 Pre-provision pretax income 552 Pre-provision pretax income 164 Provision for loan losses 140 Provision for loan losses 137 Provision for loan losses 3 Pretax income 856 Pretax income 688 Pretax income 168 Income tax expense 324 Income tax expense 264 Income tax expense 60 Net income 532 Net Income 424 Net income 108 EPS $1.91 EPS $1.53 EPS $0.39

Source:SNL, Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 17 21 September 2016

Revenue Dis-Synergies a Major Hurdle We see a major hurdle to financial accretion from the foregone banking income that E*Trade currently enjoys. At the moment, E*Trade earns about 260 bps net interest margin on its banking assets (with the loan book earning substantially more at north of 400 bps). More than 60% of E*Trade Bank's interest-earning assets are funded by low-cost brokerage sweep deposits. Post-acquisition, we assume retail deposits will be swept to TD Bank under the IDA agreement, earning a lower 64 bps in net yield, given the depressed long-run rate environment. This implies a significant foregone income for TD Ameritrade should it decide to divest the bank, even if it also manages to sweep E*Trade's off balance sheet client cash to TD Bank.

Figure 17: Change in Spread Income Post Merger 2Q16 annualized. US$ in millions

1 2 3 Revenue hit = $672 mil

$1,184 -900

228 $512

Spread Revs (ETFC) ETFC Bank Spread Revs Swept to IDA Spread Revenues (AMTD/ETFC PF)

1 ETFC Consolidated 2Q16 Ann. 2 ETFC Bank 2Q16 Ann. (+) Net Interest Income 1,144 (+) Loans 196 (+) Off-Balance Sheet Cash 40 (+) MBS (AFS) 272 Spread Revs (ETFC) $1,184 (+) HTM Securities 428 (-) Retail Deposits 4 ETFC Bank Spread Revs $900 3 IDA Sweep 2Q16 Ann. (+) Sweep deposits 27,085 (+) Off Balance Sheet Assets 8515 Spread Balance Swept to IDA $35,600 (x) IDA Yield 0.64% Swept to IDA $228

Source: Company data, Credit Suisse estimates. Based on CS estimate of average IDA money yield

Strategic Rationale –Scale Build TD Ameritrade will benefit from increased scale to compete with Schwab and Fidelity in the self-directed space (acquiring E*Trade will add about 40% to TD Ameritrade's client assets). However, we view this rationale as less compelling. We note that Ameritrade has gathered $318 billion in assets since 2010 (more than E*Trade's entire client asset base) organically. We thus see little benefit in Ameritrade allocating significant shareholder resources and management time to pursue an E*Trade acquisition. Financial Implications – Expense Synergies Drive Long-term Accretion Utilizing our base case transaction assumptions, we estimate a TD Ameritrade – E*Trade merger would be slightly dilutive to AMTD shareholders in the first year of deal closing,

E*TRADE Financial (ETFC) 18 21 September 2016

and 2% and 10% accretive in years 2018-2019 owing to expense synergies. Upside would exist primarily to the extent we are underestimating expense synergy realization phase-in. See Figure 18 for merger model details.

Figure 18: TD Ameritrade X E*Trade Merger Model Summary US$ in millions, unless otherwise stated Transaction Summary ($ mil) Earnings Bridge (2019E) Acquirer: AMTD $4.50 Target: ETFC $4.00 $0.67 $3.50 $0.91 Offer price per share: $28 $3.00 $0.46 $0.00 $0.09 $2.49 Premium to current 0% $2.50 $2.27 $0.77 $0.03 Valuation 2016 P/E 17.0x $2.00 2017 P/E 16.6x $1.50 $1.00 Assumed closing date: Jan-17 $0.50 Total consideration: $7,917 USD $0.00 AMTD 2019 ETFC earnings Expense Revenue dis- Opportunity New debt Dilution Other Pro-forma EPS Funding: Stock $5,938 75% EPS synergy synergy cost of cash expense Debt $1,979 25% Cash $0 0% Cash EPS Accretion/Dilution (bar) and ROIC (circle) Contribution Analysis & Ownership (2017E) Expense Synergy ($ mil) 12% 10% 100% Total: $575 Phase-in: 25% 10% 80% 38% 35% 70% of ETFC's 2017E 25% 8% 60% 2016E non-interest 2018E 50% 6% 2% 6% non-bank expense 2019E 100% 4% 3% 40% 65% 75% Leverage Capacity as of Y/E 2017E 2% 2% 62% 0% 20% AMTD ETFC Pro-forma -2% 0% Debt $1,828 $993 $4,800 -4% Revenue EBITDA Ownership EBITDA $1,617 $885 $2,244 -6% -4% 2017E 2018E 2019E AMTD ETFC Debt-to-EBITDA 1.1x 1.1x 2.1x Source: Company data, Credit Suisse estimates

■ Premium & Valuation. Total deal value of $7.9Bn. We are assuming no premium to E*Trade's current market price, implying an acquisition multiple of 17x 2017 P/E. Why no premium? Under this assumption, 2019 ROIC of 6% is below our estimate of AMTD's cost of capital. Given the lack of strategic rationale, we assume Ameritrade management would only pursue a deal that is accretive to shareholder value. This is an especially pertinent point given AMTD recent history as a best in class capital allocator. ■ Consideration & Funding. Per Moody's last credit opinion, debt-to-EBITDA levels above 2.0x could drive downwards rating pressure. We assume Ameritrade will want to maintain its investment grade rating. Our funding mix assumes a mix of AMTD shares (75%) and $2.0 billion in newly issued debt (25%). We estimate the pro forma company would generate ~$2.2 billion in EBITDA in 2017 and hold debt of $4.8 billion, implying 2.1x leverage. ■ Revenue Dis-synergies. We are modeling in revenue dis-synergies to account for possible attrition in commissions, fees and service charges and other revenues. Regarding E*Trade Bank divestment, we model revenue dis-synergies due to foregone bank's interest income, which offsets income earned from sweeping E*Trade retail's deposits into TD Ameritrade's IDA program. In addition, there could be further dis- synergies given platform overlap between thinkorswim and OptionsHouse. ■ Expense Synergies. $575 million, equivalent to 70% of E*Trade’s 2016E non-bank baseline operating expense base. We ascribe high synergies due to the similarity in business models between E*Trade (ex-bank) and TD Ameritrade. Both have options platform and are big players in self-directed space. We assume a conservative phase- in schedule over three years of 25%, 50% and 100%. ■ Contribution Analysis–Less Exposure to Transaction Revenues. On a combined basis, we expect the pro-forma company will generate ~34% of revenues from transaction related business; AMTD currently generates ~40% of revenue from transaction.

E*TRADE Financial (ETFC) 19 21 September 2016

Figure 19: Sensitivity estimates of 2019 EPS accretion/dilution to AMTD shareholders based on take-out premium and expense synergies Premium for E*Trade Premium for E*Trade 10% -30% -20% -10% 0% 10% 20% 30%

. 30% 6% 3% 0% -3% -6% -8% -10% p O

35% 8% 5% 2% -1% -4% -7% -9% k y

n 40% 9% 6% 3% 0% -2% -5% -8% g a r b

e 45% 11% 8% 5% 2% -1% -4% -6% - n n

y 50% 13% 10% 6% 3% 1% -2% -5% o ) s

n x 55% e 15% 11% 8% 5% 2% -1% -3% E s s '

n 60% 16% 13% 10% 7% 4% 1% -2% C e F

p 65% 18% 15% 11% 8% 5% 2% 0% T x E

E 70% 20% 16% 13% 10% 7% 4% 1% f o 75% 21% 18% 15% 11% 8% 5% 3% %

( 80% 23% 20% 16% 13% 10% 7% 4%

Green cells represent accretion to AMTD 2019 EPS. Source: Company data, Credit Suisse estimates

Figure 20: Sensitivity estimates of 2019 Return on Invested Capital of AMTD based on take-out premium and expense synergies Premium for E*Trade 6% -30% -20% -10% 0% 10% 20% 30%

. 30% 6% 5% 4% 3% 3% 2% 2% p O

35% 6% 5% 4% 3% 3% 2% 2% k y

n 40% 7% 5% 5% 4% 3% 3% 2% g a r b

e 45% 7% 6% 5% 4% 3% 3% 2% - n n

y 50% 8% 6% 5% 4% 4% 3% 3% o ) s

n x 55% e 8% 7% 6% 5% 4% 3% 3% E s ' s

n 60% 9% 7% 6% 5% 4% 4% 3% C e F

p 65% 9% 7% 6% 5% 5% 4% 3% T x E

E 70% 9% 8% 7% 6% 5% 4% 4% f o 75% 10% 8% 7% 6% 5% 4% 4% %

( 80% 10% 9% 7% 6% 5% 5% 4%

Green cells represent 2019 Return on Invested Capital in excess of AMTD's cost of capital, which is 7.1%. Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 20 21 September 2016

Figure 21: TD Ameritrade X E*Trade Contribution Analysis Based on 2017E, $US in millions, unless otherwise stated

Unadjusted % Contribution AMTD ETFC Pro Forma AMTD ETFC

Commission and transaction fees 1,400 499 1,900 74% 26% Advisory fees 427 0 427 100% 0% Fees and service charges 960 241 1,201 80% 20% Interest revenue 635 1,347 1,982 32% 68% Gain on sale of loan/securities 0 40 40 0% 100% Others 60 42 102 59% 41% Total revenue 3,482 2,170 5,652 62% 38% Non-interest expense 2,042 1,309 3,351 61% 39% Interest expense 56 79 135 41% 59% Provision expense 0 0 0 N/A N/A Pretax Income 1,384 782 2,166 64% 36% Income Taxes 526 297 823 64% 36% Net Income 858 485 1,343 64% 36% Preferred dividend 0 29 29 0% 100% Net Income to Common 858 455 1,314 65% 35%

Revenue Mix Commission and transaction fees 40% 23% 34% Advisory fees 12% 0% 8% Fees and service charges 28% 11% 21% Interest revenue 18% 62% 35% Gain on sale of loan/securities 0% 2% 1% Others 2% 2% 2%

PROFITABILITY TRENDS Pretax margin 39.8% 36.0% 38.3% Net margin 24.6% 22.3% 23.8% Tax rate 38.0% 38.0% 38.0%

Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 21 21 September 2016

4. Schwab x E*Trade Gauging Deal Structure Our proposed transaction structure assumes that SCHW sells E*Trade's legacy loan book and integrates the rest of the bank and broker into its operations. Revenue Dis-Synergies More Muted Since Schwab already operates a bank, we believe revenue dis-synergies would be more muted versus our TD Ameritrade analysis. We still estimate revenue dis-synergies however as we assume Schwab would sell E*trade's legacy loan book and invest the proceeds in securities. Based on our analysis, that would be 5% dilutive to 2017 Pro-forma Cash EPS. Strategic Rationale – Land Grab and Bank License While we view this acquisition as less likely compared to the others (Schwab focuses on assets gathering and doesn’t really need scale in the brokerage business), there are still merits to this combination. Currently, Schwab's client cash is only swept into Schwab Bank, which limits the amount of FDIC insurance that the clients get. With a second bank license from E*Trade, Schwab will be able to offer their clients twice the insurance on sweep deposits, which makes Schwab's cash management offering more attractive. In addition, taking out a key competitor like E*Trade strengthens its competitive positioning while weakening the ability of competitors like Ameritrade to scale faster. Financial Implications – Expense Synergies Drive Long-term Accretion Utilizing our base case transaction assumptions, we estimate a Schwab – E*Trade acquisition would be accretive to SCHW shareholders (accretion of 12%, 16% and 24% to FY1, FY2 and FY3 EPS) owing to expense synergies. Upside would exist primarily to expense synergy realization. See Figure 22 for merger model details.

Figure 22: Schwab X E*Trade Merger Model Summary US$ in millions, unless otherwise stated Transaction Summary ($ mil) Earnings Bridge (2019E)

Acquirer: SCHW $3.50 Target: ETFC $3.00 $0.40 $2.66 $0.36 $0.05 $0.00 $0.07 $2.50 $2.15 Offer price per share: $28.13 $0.21 $0.00 Premium to current 0% $2.00 Valuation 2016 P/E 16.9x $1.50 2017 P/E 16.5x $1.00 $0.50 Assumed closing date: Jan-17 Total consideration: $7,886 $0.00 SCHW 2019 ETFC earnings Expense Revenue dis- Opportunity New debt Dilution Other Pro-forma EPS Funding: Stock $3,943 50% EPS synergy synergy cost of cash expense Debt $3,943 50% Cash $0 0% EPS Accretion/Dilution (bar) and ROIC (circle) Contribution Analysis & Ownership (2017E) Expense Synergy ($ mil) 24% 100% Total: $855 Phase-in: 25% 9% 20% 20% 2017E 25% 80% 20% 70% of ETFC's 2016E 2018E 50% 16% 60% non-interest expense 2019E 100% 15% 12% 91% Leverage Capacity as of Y/E 2017E 40% 80% 80% SCHW ETFC Pro-forma 10% 9% 20% Debt $2,876 $993 $7,812 5% 6% EBITDA $3,645 $885 $4,621 4% 0% Revenue EBITDA Ownership Debt-to-EBITDA 0.8x 1.1x 1.7x 0% 2017E 2018E 2019E SCHW ETFC

Source: Company data, Credit Suisse estimates

Premium & Valuation. Total deal value of $7.9Bn. We are assuming 0% premium to E*Trade's current market price, implying an acquisition multiple of 17x 2017 P/E. Why no E*TRADE Financial (ETFC) 22 21 September 2016

premium? We are trying to compare how SCHW and AMTD would fare in an acquisition of E*Trade, hence assuming the same take-out premium helps facilitate the comparison. Under this assumption, 2019 ROIC of 9% is above our estimate of SCHW's cost of capital of 8%, implying the deal could create value for SCHW shareholders. It thus indicates that SCHW is poised to gain more benefits from acquiring E*Trade than AMTD. ■ Consideration & Funding. A mix of SCHW shares (50%) and $3.9 Bn in newly issued debt (50%). By year-end 2017, we estimate the pro forma company would generate $4.6 billion in EBITDA in 2017 and hold debt of $7.8 billion, implying 1.7x leverage. ■ Revenue Dis-synergies. We are modeling in revenue dis-synergies to account for possible attrition in commissions, fees and service charges and other revenues. We also model in revenue dis-synergies due to E*Trade loan book divestment, whose foregone income offsets the interest earned from sweeping loan sale proceeds to SCHW. ■ Expense Synergies. ~$855 million, equivalent to 70% of ETFC's 2016E baseline operating expense. There are significant expense synergies to be realized here given very similar businesses that the two companies are involved in: banking, traditional retail brokerage and retail options brokerage (E*Trade now has OptionsHouse while Schwab has optionsXpress). We note that the greatest cost saving benefits could result from relative ease in integrating two brokerage banks. We assume a conservative phase-in schedule over three years of 25%, 50% and 100%. ■ Contribution Analysis–Increased but Still Modest Exposure to Transaction Revenues. On a combined basis, given E*Trade's greater dependence on commissions revenues, we estimate the pro-forma company will generate ~13% of revenues from transaction-related business; SCHW currently generates only 10% of revenue from transaction.

Figure 23: Sensitivity estimates of 2019 EPS accretion/dilution to SCHW shareholders based on take-out premium and expense synergies Premium for E*Trade Premium for E*Trade 24% -30% -20% -10% 0% 10% 20% 30% 30% 18% 17% 15% 14% 13% 12% 10%

) 35% 19% 18% 17% 15% 14% 13% 11% x y E 40% 21% 19% 18% 17% 15% 14% 13%

g . r p

e 45% 22% 20% 19% 18% 16% 15% 14% O n

y 50% 23% 22% 20% 19% 18% 16% 15% s ' s

C 55% e 24% 23% 21% 20% 19% 17% 16% F s T

n 60% 26% 24% 23% 21% 20% 19% 17% E e

f p 65% 27% 25% 24% 23% 21% 20% 19% x o

E 70% 28% 27% 25% 24% 22% 21% 20% % ( 75% 29% 28% 26% 25% 24% 22% 21% 80% 30% 29% 28% 26% 25% 23% 22%

Green cells represent accretion to SCHW 2019 EPS. Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 23 21 September 2016

Figure 24: Sensitivity estimates of 2019 Return on Invested Capital of SCHW based on take-out premium and expense synergies Premium for E*Trade 9% -30% -20% -10% 0% 10% 20% 30% 30% 10% 8% 7% 6% 5% 4% 3%

) 35% 10% 8% 7% 6% 5% 4% 4% x y E 40% 11% 9% 8% 7% 6% 5% 4%

g . r p

e 45% 12% 10% 8% 7% 6% 5% 5% O n

y 50% 12% 10% 9% 7% 6% 6% 5% s ' s

C 55% e 13% 11% 9% 8% 7% 6% 5% F s T

n 60% 14% 11% 10% 8% 7% 6% 6% E e

f p 65% 14% 12% 10% 9% 8% 7% 6% x o

E 70% 15% 13% 11% 9% 8% 7% 6% % ( 75% 16% 13% 11% 10% 9% 8% 7% 80% 16% 14% 12% 10% 9% 8% 7%

Green cells represent 2019 Return on Invested Capital in excess of SCHW's cost of capital, which is 7.9%. Source: Company data, Credit Suisse estimates

Figure 25: Charles Schwab X E*Trade Contribution Analysis Based on 2017E, US$ in millions, unless otherwise stated Unadjusted % Contribution SCHW ETFC Pro Forma SCHW ETFC

Trading revenue 811 499 1,310 62% 38% Advisory fees 3,397 0 3,397 100% 0% Fees and service charges 0 241 241 0% 100% Net interest revenue 3,653 1,268 4,921 74% 26% Gain on sale of loan/securities 0 40 40 0% 100% Others 260 42 302 86% 14% Total revenue 8,121 2,091 10,212 80% 20% Non-interest expense 4,790 1,309 6,099 79% 21% Provision expense 30 0 30 100% 0% Pretax Income 3,301 782 4,083 81% 19% Income Taxes 1,225 297 1,522 80% 20% Net Income 2,077 485 2,561 81% 19% Preferred dividend 156 29 185 84% 16% Net Income to Common 1,921 455 2,376 81% 19%

Revenue Mix Trading revenue 10.0% 23.9% 12.8% Advisory fees 41.8% 0.0% 33.3% Fees and service charges 0.0% 11.5% 2.4% Net interest revenue 45.0% 60.7% 48.2% Gain on sale of loan/securities 0.0% 1.9% 0.4% Others 3.2% 2.0% 3.0%

PROFITABILITY TRENDS Pretax margin 40.7% 37.4% 40.0% Net margin 25.6% 23.2% 25.1% Tax rate 37.1% 38.0% 37.3% Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 24 21 September 2016

Thoughts on CEO Change & Corporate Governance CEO Change Surprising–-Achieved Targets; Recently Signed New Contract Like most investors, we were surprised by the sudden exit of CEO Paul Idzik. At face value there were not many indications that the Board of Directors were unhappy with his performance. Recall, the board renewed his contract for another 3 years in October 2015, and during his 3 years tenure as CEO, Mr. Idzik was paid close to the maximum of possible award in his contract (his predecessor Mr. Freiberg did not achieve this feat). The Board Appeared Happy With Mr Idzik's Performance "Given our strong financial results in 2015, all bonus payouts to NEOs were at or above target. However, the Board (with respect to the CEO) and the Compensation Committee approved slightly different allocations (as a percentage of targets) due to the particular responsibilities and roles of each individual NEO. The Board approved Mr. Idzik receiving 150% of target in recognition of the Company’s strong financial results, his responsibility for all of the Company’s business units and functions and his leadership in the execution of key initiatives, including continuing the build-out of the Company’s Enterprise Risk Management function, as well as enhancing the Company’s and E*TRADE Bank’s regulatory relationships. 2016 Proxy filing (March 30, 2016).

Figure 26: Mr. Idzik Paid Close to Maximum Possible Under His Contract E*Trade CEO Pay, US$ in millions, unless otherwise stated

Min pay (contract) Max pay (contract) Actual pay

$18 $16 $14 $12 $10 $8 $6 $4 $2 $0 2008 2009 2010 2011 2012 2013 2014 2015 Donald H Layton Stephen J Freiberg Paul T Idzik

2012 includes severance pay for Mr, Freiberg. 2013 includes $9 mil new hire grant. Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 25 21 September 2016

Management Stability Needed Relative to peers SCHW and AMTD, ETFC has the least tenured board and management team. We believe some stability is needed allow the management team execute on long term objectives. Figure 27: Median Tenure of Retail Broker Board/Management

9.07

7.05

4.87 4.30 3.29 2.36

Management Board

ETFC AMTD SCHW

Note: Since 2010, in years . Source: Company data, Thomson Reuters

Figure 28: E*Trade's Management Changes since 2005

Former Management Members Name Age Position Held Start Date End Date In Position Mr. Paul Idzik 55 Chief Executive Officer 22-Jan-13 12-Sep-16 4 Years Mr. Paul Brandow -- Acting Chief Risk Officer Jun-15 Dec-15 1 Year Mr. Matthew (Matt) Audette 41 Chief Financial Officer, Executive Vice President May-08 16-Jun-15 7 Years Mr. Navtej Nandra 48 President 1-May-13 2015 2 Years Mr. Frank Petrilli -- Interim Chief Executive Officer 9-Aug-12 9-May-13 1 Year Mr. Michael Curcio 51 Executive Vice President; President 2005 1-May-13 8 Years Mr. Nicholas (Nick) Utton -- Executive Vice President, Chief Marketing Officer 2004 5-Mar-13 9 Years Mr. Gregory (Greg) Framke -- Chief Operating Officer, Executive Vice President 2005 4-Feb-13 8 Years Mr. Steven (Steve) Freiberg 59 Chief Executive Officer 1-Apr-10 9-Aug-12 2 Years Mr. Robert (Bob) Druskin 64 Interim Chief Executive Officer 31-Dec-09 1-Apr-10 < 1 Year Mr. Bruce Nolop 65 Chief Financial Officer, Executive Vice President 12-Sep-08 31-Dec-10 2 Years Mr. Donald (Don) Layton 65 Chief Executive Officer 29-Nov-07 31-Dec-09 2 Years Mr. Russell Elmer -- Interim General Counsel, Interim Secretary 10-Oct-01 Dec-08 7 Years Mr. Robert Simmons 49 Chief Financial Officer 1-Jan-04 May-08 4 Years Mr. Arlen Gelbard 55 General Counsel, Corporate Secretary -- 22-Apr-08 -- Mr. R. Jarrett (Jarrett) Lilien 53 President, Chief Operating Officer -- 22-Apr-08 -- Mr. Mitchell Caplan 51 Chief Executive Officer 2000 29-Nov-07 7 Years Mr. Dennis Webb 1 Division President - E TRADE Capital Markets 6-Jan-05 9-Nov-07 3 Years Ms Betsy Barclay -- Chief Government Affairs Officer -- 31-Dec-05 -- James Bidwell -- Chief Risk Officer -- 31-Dec-05 -- Ms. Connie Dotson 57 Chief Communications and Knowledge Officer 1997 31-Dec-05 8 Years

Source: Company data, Thomson Reuters

E*TRADE Financial (ETFC) 26 21 September 2016

Figure 29: E*Trade's Board Changes since 2005

Former Board Members Name Age Position Held Start Date End Date In Position Mr. Paul Idzik 55 Director 22-Jan-13 12-Sep-16 4 Years Mr. Christopher (Chris) Flink 44 Independent Director 15-Oct-13 May-15 2 Years Mr. Joseph (Joe) Velli 56 Independent Director 25-Jan-10 1-Oct-14 5 Years Mr. Mohsen Fahmi 59 Independent Director 23-Jul-13 18-Aug-14 1 Year Mr. Stephen Willard -- Independent Director Apr-05 May-14 9 Years Mr. Ronald Fisher 68 Independent Director Oct-00 9-May-13 13 Years Mr. Kenneth Griffin 45 Independent Director 9-Jun-09 9-May-13 4 Years Mr. Frank Petrilli -- Chairman of the Board 27-Jan-12 9-May-13 1 Year Mr. Steven (Steve) Freiberg 59 Director 1-Apr-10 9-Aug-12 2 Years Mr. Michael Parks 55 Independent Director Apr-03 10-May-12 9 Years Mr. Lewis (Lew) Randall 69 Independent Director 10-Feb-82 10-Feb-12 30 Years Mr. Robert (Bob) Druskin 64 Non-Executive Chairman of the Board 21-Feb-08 12-May-11 3 Years Ms. C. Cathleen Raffaeli 58 Independent Director Apr-03 12-May-11 8 Years Mr. George Hayter 73 Director Dec-95 1-Apr-10 14 Years Mr. Donald (Don) Layton 65 Chairman of the Board 29-Nov-07 31-Dec-09 2 Years Mr. Daryl Brewster 58 Director Oct-04 16-May-08 4 Years Mr. R. Jarrett (Jarrett) Lilien 53 Director 7-Nov-06 22-Apr-08 1 Year Mr. Mitchell Caplan 51 Director Jan-03 31-Dec-07 5 Years

Source: Company data, Thomson Reuters

E*TRADE Financial (ETFC) 27 21 September 2016

Valuation–What's E*trade Worth? In determining the value of E*Trade, we attempt to address several points: ■ Earnings power ■ Warranted valuation multiple ■ Fair value marks ■ Excess capital ■ Deferred tax asset Accounting for all the above, we ascribe $33 per share to a E*trade, based on ~$2.00 earnings power and 15x warranted multiple plus ~$2.60 per share of DTA. See details below: Gauging Earnings Power We peg E*trade's earnings power at ~$1.90 per share if management is able to execute on its stated strategy and based on our assumption that the loan book will be sold or run- off, implying 25% earnings growth from current earnings run-rate. In addition, in a more favorable environment E*trade also stands to benefit from rising interest rate environment– -75 bps parallel shift in curve adds ~ $0.30 while business growth could add ~$0.13 per share to E*trade's earnings power.

Figure 30: Pro-forma EPS Bridge

0.31 2.34 0.12 0.13 0.34 0.18 1.90 0.12 -0.13 1.52 -0.25

LTM EPS Full run rate of Balance Sheet Provision to 0 37% Operating OptionsHouse Loan Book EPS Current +4% Growth +75 bps rate EPS capital actions to $56 Bn Margin acq Sale/Runoff Environment rise Favorable Environment

Benefit from interest rate rise assumes parallel shift in yield curve. Current and favorable operating environment assume 38% tax rate. Source: Company data, Credit Suisse estimates

Our pro-forma earnings build up from last twelve months (LTM) operating earnings to pro- forma earnings is as follows: ■ Full Run-Rate of Recent Capital Actions. (1) Management eliminated its wholesale funding in 3Q15 and we adjust LTM earnings to account for the full run-rate impact which we estimate to be $24 million / $0.05 per share benefit. (2) The company also repurchased 20.7 mil shares ($502 mil) in the LTM which will benefit pro-forma EPS by a $0.07 when it's fully phased in. ■ Growing The Balance Sheet to $56Bn. Management disclosed on its last earnings call that it would breach the $50Bn SIFI designation threshold in 1H17 which will allow it to bring $6Bn of customer deposits currently held at third party banks / money market funds back onto E*Trade's balance sheet. While there are significant costs in breaching the $50Bn SIFI limit involved ($50 mil to build out capabilities and $15 mil for ongoing costs) but the company will be able to earn 150-175 bps on its balance sheet E*TRADE Financial (ETFC) 28 21 September 2016

at current reinvestment rates compared to the ~24 bps it currently earns on customer deposits held at third party banks / money market funds. ■ Achieving Operating Margin Target of 37% versus 34% LTM. Cost control the key lever. ■ Removing the Benefit of Provision Release. Better than expected credit performance has driven $117 of loan loss reserve release in the LTM. Eventually, provisions will be eliminated as the legacy loan book continues to wind-down. ■ Elimination of Loan Book & Related Cost. When the loan book is eventually fully wound down or sold, the $5.0Bn balances which earned 4.2% LTM will likely be reinvested in securities earning 1.50%-1.75%. We estimate that impact at -$0.13 per share, which also assumes some cost offsets. We estimate costs at $60 million or 60% of the 2015 annual expenses of the Balance Sheet Management segment (last reported when the company previously disclosed segment results). ■ OptionsHouse Acquisition. Our bridge includes $0.12 EPS from the OptionsHouse acquisition which is our estimated 2019 accretion from the deal. ■ Interest Rate Sensitivity. We estimate a 75 bps parrellel shift in the yield curve would increase EPS by $0.31. ■ Core Brokerage Business Growth. If management is able to grow its top-line through brokerage (commissions, margin receivables, assets) we estimate the EPS impact at $0.13. Gauging Warranted Multiple We ascribe a 15x L/T multiple for E*trade based on 1x PEG ratio and earnings growth rate of 15% (driven by 4% revenue growth and stable expense levels). A Look at Wealth Manager Valuations Currently, retail brokers are valued at 19x forward earnings, which is in line with the long- run multiple of 20x. In terms of PEG, the industry is currently valued at 1.7x PEG ratio, significantly higher than the long-run PEG of 0.9x.

E*TRADE Financial (ETFC) 29 21 September 2016

Figure 31: U.S. Wealth Manager Industry NTM P/E

25x Retail Brokers SMID Brokers

20x 19.6x

15x 15.0x

10x Dec-01 Jun-03 Dec-04 Jun-06 Dec-07 Jun-09 Dec-10 Jun-12 Dec-13 Jun-15

Retail brokers relate to AMTD, ETFC, SCHW, LPLA, SMID Brokers relate to RJF and SF. NTM = based on next twelve months of consensus earnings. Source: Thomson Reuters, Credit Suisse estimates

Figure 32: U.S. Wealth Manager Industry PEG Ratio

1.8x Retail Brokers SMID Brokers 1.6x 1.4x 1.2x 1.0x 0.9x 0.8x 0.8x 0.6x 0.4x 0.2x 0.0x Jun-05 Dec-06 Jun-08 Dec-09 Jun-11 Dec-12 Jun-14 Dec-15

PEG: NTM P/E / consensus 3 year earnings expectation. Retail brokers relate to AMTD, ETFC, SCHW, LPLA, SMID Brokers relate to RJF and SF. Source: Thomson Reuters, Credit Suisse estimates A Look at E*Trade's Valuation In terms of valuation metrics, E*Trade follows the same pattern of the industry. The company is currently trading at 17x earnings, below but not far from the long-run multiple of 21x. However, the company's PEG of 1.7x far exceeds the long-run average of 0.9x, which again indicative of investors' robust growth expectations.

E*TRADE Financial (ETFC) 30 21 September 2016

Figure 33: ETFC NTM P/E Figure 34: ETFC PEG Ratio

50x 2.0x 1.8x 40x 1.6x 1.4x 1.3x 30x 1.2x 27.4x 1.0x 0.9x 20x 20.9x 0.8x 14.5x 0.6x 0.5x 10x 0.4x 0.2x 0x 0.0x Sep-10 Mar-12 Sep-13 Mar-15 Sep-16 Sep-10 Mar-12 Sep-13 Mar-15 Sep-16

NTM = based on next twelve months of consensus earnings. Source: Thomson Reuters, PEG: NTM P/E / consensus 3 year earnings expectation. Source: Thomson Reuters, Credit Credit Suisse estimates Suisse estimates

Figure 35:U.S. Wealth Manager P/E NTM – Historical Figure 36: U.S. Wealth Manager PEG – Historical Comparison Comparison P/E NTM AMTD ETFC LPLA SCHW RJF SF PEG AMTD ETFC LPLA SCHW RJF SF Current 20.8x 17.4x 16.8x 22.5x 14.2x 14.2x Current 1.7x 1.7x 2.1x 1.3x 1.2x 1.0x 10th Percentile 12.7x 9.5x 13.7x 18.7x 11.1x 11.6x 10th Percentile (0.2)x (0.1)x 0.7x 0.4x (0.2)x (0.2)x Post-Crisis Median 17.9x 21.6x 16.7x 22.8x 14.3x 15.7x Post-Crisis Median 1.0x 0.8x 1.0x 0.9x 0.9x 0.8x Pre-Crisis Median 19.2x 13.6x – 22.9x 14.9x 13.1x Pre-Crisis Median 0.7x 0.8x – 0.9x 0.4x NA 90th Percentile 24.9x 30.2x 19.0x 38.7x 16.7x 19.3x 90th Percentile 1.5x 1.6x 1.3x 1.3x 1.2x 1.1x

Current P/E NTM vs. Current PEG vs. 10th Percentile 163% 183% 122% 121% 128% 123% 10th Percentile – – 296% 373% – – Post-Crisis Median 116% 80% 100% 99% 99% 90% Post-Crisis Median 172% 227% 211% 150% 143% 118% Pre-Crisis Median 108% 128% – 99% 95% 108% Pre-Crisis Median 229% 210% – 144% 337% – 90th Percentile 83% 58% 88% 58% 85% 74% 90th Percentile 112% 111% 166% 99% 102% 89%

NTM = based on next twelve months of consensus earnings. Source: Thomson Reuters, PEG: NTM P/E / consensus 3 year earnings expectation. Source: Thomson Reuters, Credit Credit Suisse estimates Suisse estimates Fair Value Marks ■ Similar to any bank, if E*Trade were to be sold, the company’s assets and liabilities would need to be marked-to-market to ascertain fair value. Improvement in credit quality in the loan book and accumulated gains in securities portfolio have helped swing total fair value mark a significant negative position in recent years to a positive fair value of $675 million. While it's tough for us to assess the conservatism of these marks, at the very least we are somewhat reassured that there are unlikely to be significant capital holes in the balance sheet that would impair valuation or require a potential acquirer to fill. ■ The majority of E*Trade fair value mark is attributed to HTM and AFS securities. Current fair value mark of the loan book is -$43 million, which has shown a drastic improvement over the past 6 years. ■ ETFC’s debt is currently trading at a premium to carrying value given that the debt are long-term in nature (the first note to expire in 2019) and the currently depressed long- term interest rate environment.

Figure 37: Fair Value Mark Estimates – At $675 million as of 2Q16 E*TRADE Financial (ETFC) 31 21 September 2016

in millions, unless otherwise stated 30-Jun-15 31-Mar-16 30-Jun-16 CV FV Mark CV FV Mark CV FV Mark Cash & equivalents 1,872 1,872 0 1,627 1,627 0 2,393 2,393 0 Segregated cash & investments 767 767 0 2,158 2,158 0 1,821 1,821 0 Trading securities 0 0 0 0 0 0 0 0 0 Avail-for-sale MBS/investments 13,922 13,866 -56 13,916 14,005 89 13,634 13,895 261 Held-to-maturity sec. 12,291 12,465 174 14,968 15,371 403 15,716 16,272 556 Margin receivables 8,139 8,139 0 6,336 6,336 0 6,824 6,824 0 1-4 family 2,747 2470 -277 2,337 2282 -55 2,216 2218 2 Home equity 2,113 1909 -204 1,709 1583 -126 1,584 1530 -54 Consumer and other 392 396 4 314 322 8 289 298 9 Loans, net 5,252 4,775 -477 4,360 4,187 -173 4,089 4,046 -43 Investment in FHLB stock 89 89 0 0 0 0 0 0 0 Interest-earning assets 42,332 41,973 -359 43,365 43,684 319 44,477 45,251 774 Property & equipment, net 238 238 0 232 232 0 231 231 0 Goodwill 1,792 1,792 0 1,792 1,792 0 1,792 1,792 0 Other intangibles, net 184 184 0 169 169 0 164 164 0 Other assets 2,625 2,625 0 745 745 0 755 755 0 Total assets 47,171 46,812 -359 46,303 46,622 319 47,419 48,193 774 Deposits 26,214 26,214 0 31,829 31,829 0 32,964 32,964 0 Securities sold under repo 3,617 3,623 6 0 0 0 0 0 0 Customer payables 6,702 6,702 0 6,793 6,793 0 6,712 6,712 0 Other borrowings 1,309 1,186 -123 409 250 -159 409 260 -149 Corporate debt 1,023 1,111 88 993 1,039 46 993 1,043 50 Accounts payable, accrued and other l1ia,9b4il8ities 1,948 0 1,437 1,437 0 1,744 1,744 0 Total liabilities 40,813 40,784 -29 41,461 41,348 -113 42,822 42,723 -99 Implied Fair value mark -388 206 675

Source: Company data, Credit Suisse estimates Excess Capital Management plans to request regulatory approval to lower its Tier 1 leverage ratio at the bank from 8.0% to 7.5% in early 2017 – freeing up $180 mil of additional capital. Its Tier-1 Leverage ratio in 2Q16 was 8.2%, giving it $55 million of excess capital currently. Longer- term, management believes it could be operating closer to 7% and is working with its supervisors to lay out its capital plans and improve its enterprise risk management towards hat goal. Operating at a 7.0% ratio would free up an additional $180 mil of excess capital. On a consolidated basis, E*Trade has a Tier-1 leverage ratio of 7.5%. Ultimately we do not ascribe any value to excess capital in our valuation framework. Our earnings power framework already factors in the use of excess capital to grow bank assets over $50Bn.

E*TRADE Financial (ETFC) 32 21 September 2016

Figure 38: Lower Capital Requirements Would Generate Excess Capital US$ in millions, unless otherwise stated

4Q15 1Q16 2Q16 E*Trade Bank E*Trade Adjusted total assets $31,578 $33,826 $36,068 Risk-weighting 27% 26% 24% E*Trade Bank Tier 1 Capital/CET 1 $3,075 $2,896 $2,940 Tier 1 Capital-to-Adjusted Total Assets (Leverage) 9.7% 8.6% 8.2% Excess Tier 1 Capital at 8.0% leverage ratio (Mgmt Target 2016) $549 $190 $55 Excess Tier 1 Capital at 7.5% leverage ratio (Mgmt Target 2017) $707 $359 $235 Excess Tier 1 Capital at 7.0% leverage ratio $865 $528 $415

4Q15 1Q16 2Q16 E*TRADE Financial Tier 1 capital $3,747 $3,410 $3,463 Average total assets for leverage capital purposes $41,862 $43,542 $45,976 Total risk-weighted assets $9,536 $9,882 $9,731 Tier 1 leverage ratio 9.0% 7.8% 7.5% Tier 1 common ratio 39.3% 34.5% 35.6% Tier 1 risk-based capital ratio 39.3% 34.5% 35.6% Total risk-based capital ratio 43.9% 40.0% 41.2% Excess Tier 1 Capital at 7.0% leverage ratio $817 $362 $245 Source: Company data, Credit Suisse estimates

Deferred Tax Asset ■ E*Trade holds $830 million of deferred tax asset (DTA) as of 2Q16, primarily associated with the firm’s net operating losses with a statutory carry-forward period of 20 years (which will start expiring in 11 years). Based on 2014 10K filing, the annual limitation on the use of E*Trade’s DTA is approximately $194 million. We note that the specific disclosure was taken out in the 2015 filing so our estimates are dependent on the accuracy of the 2014 numbers. ■ Ultimately, we estimate that E*Trade’s DTA survives in an acquisition and ascribe value upwards of approximately $710 million ($2.55 per share) on a net present value basis. Underpinning our assumptions, our DCF-methodology assumes that E*Trade will be able to fully utilize the deferred tax asset in the future and discounts it back at a 8% rate.

E*TRADE Financial (ETFC) 33 21 September 2016

Figure 39: E*Trade Deferred Tax Asset – We Ascribe A $710 million Value in millions, unless otherwise stated

DTA Details DTA at 2Q16 $830

Annual NOL Cap $194 Tax rate 38% 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 ETFC Pretax Operating Income $749 $782 $830 $821 $862 $906 $951 $998 $1,048 $1,101 Income taxes $283 $297 $316 $312 $328 $344 $361 $379 $398 $418

Beginning DTA Balance $830 $636 $442 $248 $54 $0 $0 $0 $0 $0 Less: Income taxes -$194 -$194 -$194 -$194 -$194 -$194 -$194 -$194 -$194 -$194 Ending DTA Balance $636 $442 $248 $54 $0 $0 $0 $0 $0 $0 DTA used $194 $194 $194 $194 $54 $0 $0 $0 $0 $0 PV $187 $174 $161 $150 $39 $0 $0 $0 $0 $0 Discount rate 8% PV of DTA $710 PV of DTA per share $2.55

Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 34 21 September 2016

Appendix – Merger Model Details

Figure 40: E*Trade – LPL Financial Merger Model $ in millions, except per-share data

Income Statements 2014 2015 2016E 2017E 2018E 2019E Transaction Details E*TRADE Financial Closing Date 0.00 Jan-17 Fee revenues $743 $719 $758 $822 $837 $863 Previous Day 9/19/2016 Net interest income $961 $1,021 $1,143 $1,268 $1,305 $1,311 ETFC LPLA Net revenues $1,704 $1,740 $1,901 $2,091 $2,142 $2,173 Current stock price $28.49 $30.02 yr/yr % 6% 2% 9% 10% 2% 1% Shares outstanding (mil) 275 90 Noninterest expenses $1,157 $1,203 $1,221 $1,309 $1,311 $1,352 2016 P/E 17.1x 15.8x yr/yr % 3% 4% 2% 7% 0% 3% 2017 P/E 16.7x 15.4x Memo: Depreciation & Amortization $78 $81 $80 $81 $82 $84 Market cap (mil) $7,826 $2,700 Provision for credit costs -$36 $40 $69 $0 $0 $0 Tax rate 38.0% 39.5% Pretax income $511 $577 $749 $782 $830 $821 Premium to current 30% $39.03 Pre-provision pretax margin 32% 31% 36% 37% 39% 38% 2016 P/E 20.6x Income taxes $181 $233 $283 $297 $316 $312 2017 P/E 20.0x Effective tax rate 35% 40% 38% 38% 38% 38% Total transaction value (USD, bn) $3,511 Preferred dividends $0 $0 $0 -$29 -$24 -$24 Consideration received by LPL Financial shareholders Net income - adjusted $330 $344 $467 $455 $491 $486 % Amount yr/yr % 62% 4% 36% -2% 8% -1% Stock 100% $3,511 EPS - Operating $1.12 $1.17 $1.66 $1.70 $1.90 $1.95 Cash 0% $0 Cash EPS $1.29 $1.33 $1.84 $1.89 $2.09 $2.16 Total 100% $3,511 EPS - GAAP $1.00 $0.91 $1.74 $1.60 $1.78 $1.95 ROE 6.1% 6.2% 7.9% 7.7% 8.2% 8.0% ETFC LPLA Pro Forma Dividend per share $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Shares to issue 274.7 123.2 397.9 Diluted share count 294.0 295.0 280.3 267.2 259.1 249.5 Pro forma ownership 69% 31% LPL Financial Net revenues $4,374 $4,275 $4,083 $4,106 $4,318 $4,588 Funding Mix in USD (in millions) yr/yr % 6% -2% -4% 1% 5% 6% % Amount P/T Cost Production expense $3,048 $2,917 $2,690 $2,649 $2,730 $2,850 Stock 100% $3,511 -- % commissions/advisory fees 88% 88% 87% 87% 86% 86% Debt 0% $0 4.00% Memo: Gross profit $1,326 $1,358 $1,393 $1,457 $1,588 $1,738 Cash 0% $0 0.25% Expense, ex-interest and production $976 $1,016 $1,013 $1,064 $1,109 $1,151 Total consideration 100% $3,511 -- yr/yr % 9% 4% 0% 5% 4% 4% Memo: Depreciation & amortization 97 112 115 117 119 119 Interest expense 52 59 96 97 98 99 Pretax income $299 $283 $284 $296 $382 $488 Balance Sheet & Capital Pretax margin 7% 7% 7% 7% 9% 11% ETFC LPLA Adj. PF Income taxes $117 $114 $113 $117 $151 $193 Tier 1 Capital $3,463 -$985 $364 $2,842 Effective tax rate 39% 40% 40% 40% 40% 40% Assets (for Leverage Ratio) $45,976 $4,608 0 $50,584 Net income $178 $169 $171 $179 $231 $295 Risk Weighted Assets $9,731 $975 $0 $10,706 yr/yr % -2% -5% 1% 5% 29% 28% Risk weight 21% 21% 21% 21% EPS - GAAP $1.75 $1.74 $1.90 $1.95 $2.45 $3.04 Capital Ratios EPS - Operating $2.44 $2.22 $1.90 $1.95 $2.45 $3.04 Tier 1 Capital 36% 27% ROE 3.3% 3.0% 2.9% 3.0% 3.8% 4.9% Tier 1 Leverage 7.53% 5.62% Adjustments to LPLA Revenues Revenues 2014 2015 2016E 2017E 2018E 2019E Cash Sweep Optimization $243 $267 $302 Total fee revenue adjustments $243 $267 $302 Adjusted combined ETFC-LPLA Net revenues $6,588 $6,891 $7,249 Noninterest expenses $5,131 $5,234 $5,387 EBITDA $1,677 $1,887 $2,094 LPLA interest expense $97 $98 $99 Pretax income $1,360 $1,559 $1,763 Income taxes $517 $592 $670 ETFC preferred dividend -$29 -$24 -$24 Net income $814 $943 $1,070 Pro Forma Cash EPS $2.12 $2.42 $2.72 Pro Forma EPS $1.69 $1.98 $2.28 yr/yr % - 17% 15% ROIC 10% 13% 17% Shares outstanding 482.2 476.6 469.7 Cash EPS Acc/(Dil) to ETFC shareholders 12% 16% 26% EPS Acc/(Dil) to ETFC shareholders -1% 4% 17%

Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 35 21 September 2016

Figure 41: E*Trade – Scottrade Financial Merger Model USD$ in millions, except per-share data Income Statements 2014 2015 2016E 2017E 2018E 2019E Transaction Details E*Trade Financial Closing Date 0.00 Jan-17 Fee revenues $743 $719 $758 $822 $837 $863 Previous Day 9/19/2016 Net interest income $961 $1,021 $1,143 $1,268 $1,305 $1,311 ETFC Scottrade Net revenues $1,704 $1,740 $1,901 $2,091 $2,142 $2,173 Current stock price $28.13 N/A yr/yr % 6% 2% 9% 10% 2% 1% Shares outstanding (mil) 291 N/A Noninterest expenses $1,157 $1,203 $1,221 $1,309 $1,311 $1,352 2016 P/E 16.9x N/A yr/yr % 3% 4% 2% 7% 0% 3% 2017 P/E 16.5x N/A Memo: Depreciation & Amortization $78 $81 $80 $81 $82 $84 Market cap (mil) $8,195 N/A Provision for credit costs -$36 $40 $69 $0 $0 $0 Tax rate 38.0% 38.0% Pretax income $511 $577 $749 $782 $830 $821 Pre-provision pretax margin 32% 31% 36% 37% 39% 38% Scottrade net income (2016E) $175 Income taxes $181 $233 $283 $297 $316 $312 Deal Multiple 17.5x Effective tax rate 35% 40% 38% 38% 38% 38% Total transaction value (USD, bn) $3,065 Preferred dividends $0 $0 $0 -$29 -$24 -$24 Net income - adjusted $330 $344 $467 $455 $491 $486 Consideration received by Scottrade shareholders yr/yr % 62% 4% 36% -2% 8% -1% % Amount EPS - Operating $1.12 $1.17 $1.66 $1.70 $1.90 $1.95 Stock 60% $1,839 EPS - Cash $1.29 $1.33 $1.84 $1.89 $2.09 $2.16 Cash 40% $1,226 EPS - GAAP $1.00 $0.91 $1.74 $1.60 $1.78 $1.95 Total 100% $3,065 ROE 6.5% 6.2% 7.9% 7.7% 8.2% 8.0% Dividend per share $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 ETFC Scottrade Pro Forma Diluted share count 294.0 295.0 280.3 267.2 259.1 249.5 Shares to issue 291.3 65.4 356.7 Shares outstanding 289.2 291.3 274.7 241.1 224.9 205.6 Pro forma ownership 82% 18% Adjustments to Revenues Funding Mix in USD (in millions) Fee revenues 2014 2015 2016E 2017E 2018E 2019E % Amount P/T Cost Commissions (5% attrition phased in) -$25 -$26 -$26 Stock 60% $1,839 -- Fee and service charges (5% attrition phased in) -$12 -$13 -$13 Debt 40% $1,226 4.00% Other revenue (5% attrition phased in) -$2 -$2 -$2 Cash 0% $0 0.25% Total fee revenue adjustments -$39 -$40 -$42 Total consideration 100% $3,065 -- Other Transaction Adjustments Balance Sheet & Capital Expense synergies $63 $127 $254 ETFC Scottrade Adj PF Intangible amortization $38 $38 $38 Tier 1 Capital $3,463 $1,785 $943 $6,192 Opportunity cost of cash $0 $0 $0 Assets $45,976 $22,467 $0 $68,443 Total adjustments, pretax $63 $125 $251 Risk weight 21% 21% 21% 42% Total adjustments, after tax $39 $77 $155 Risk weight assets $9,731 $4,755 $14,486 $28,972 Scottrade Tier 1 Capital 36% 7% 21% Net revenues $1,056 $1,043 $1,025 $1,079 $1,135 $1,193 Tier 1 Leverage 7.53% 9.05% yr/yr % 14% -1% -2% 5% 5% 5% Noninterest expenses $762 $846 $833 $866 $901 $937 yr/yr % 10% 11% -2% 4% 4% 4% Provision for loan losses $7 $6 $8 $8 $8 $8 Pretax income $286 $191 $184 $205 $226 $248 Pretax margin 27% 18% 18% 19% 20% 21% Income taxes $9 $9 $9 $10 $11 $12 Effective tax rate 3% 5% 5% 5% 5% 5% Net income $277 $182 $175 $195 $215 $236 yr/yr % 29% -34% -4% 11% 10% 10% Adjusted combined ETFC-Scottrade Net revenues $3,131 $3,236 $3,324 Noninterest expenses $2,150 $2,124 $2,073 EBITDA $1,065 $1,204 $1,345 Interest expense on new debt $49 $49 $49 Scottrade provision for loan losses $8 $8 $8 ETFC provision for loan losses $0 $0 $0 Pretax income $923 $1,055 $1,194 Income taxes $351 $401 $454 ETFC preferred dividends -$29 -$24 -$24 Net income $543 $631 $717 Pro Forma Cash EPS $1.87 $2.19 $2.54 Pro Forma EPS $1.63 $1.94 $2.28 yr/yr % 19% 17% ROIC 3% 5% 8% Shares outstanding 332.6 324.5 314.8 Cash EPS Acc/(Dil) to ETFC shareholders -1% 5% 18% EPS Acc/(Dil) to ETFC shareholders -4% 3% 17%

Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 36 21 September 2016

Figure 42: TD Ameritrade – E*Trade Financial Merger Model US$ in millions, unless otherwise stated TD Ameritrade-E*Trade Financial Merger Model (in millions, except per-share data)

Income Statements 2014 2015 2016E 2017E 2018E 2019E Transaction Details TD Ameritrade 110.75 Commissions & transaction fees 1,351 1,401 1,366 1,400 1,431 1,437 Date 9/20/2016 Net interest revenues 581 621 590 635 711 754 AMTD ETFC Insured deposit account fees 820 839 930 960 1,061 1,189 Current stock price $33.29 $28.24 Investment product fees 309 335 374 427 477 523 Shares outstanding (mil) 534 280 Other 61 51 60 60 60 60 2016 P/E 20.9x 17.0x Net revenues $3,122 $3,247 $3,320 $3,482 $3,739 $3,962 2017 P/E 20.6x 16.6x yr/yr % 13% 4% 2% 5% 7% 6% Market cap (mil) $17,779 $7,917 Noninterest expenses $1,838 $1,922 $1,959 $2,042 $2,117 $2,189 Tax rate 38.0% 38.0% yr/yr % 8% 5% 2% 4% 4% 3% Memo: Depreciation & amortization $185 $181 $177 $177 $177 $177 Premium to current 0.0% $28.24 Interest expense $24 $44 $53 $56 $56 $56 Consideration for ETFC $7,917 Pretax income $1,260 $1,281 $1,308 $1,384 $1,566 $1,717 Pretax margin 40% 39% 39% 40% 42% 43% Total transaction value (USD, bn) $7,917 Income taxes $483 $474 $459 $526 $595 $652 Effective tax rate 38% 37% 35% 38% 38% 38% Consideration received by ETFC shareholders Net income $787 $813 $850 $858 $971 $1,065 Amount yr/yr % 17% 3% 5% 1% 13% 10% % per share EPS $1.42 $1.49 $1.59 $1.62 $1.85 $2.05 Stock 75% $21.18 Cash EPS $1.63 $1.70 $1.81 $1.83 $2.06 $2.27 Cash 25% $7.06 ROE 16.7% 16.8% 17.1% 16.8% 18.4% 19.7% Total 100% $28.24 Dividend per share 0.98 0.6 0.68 0.76 0.84 0.92 2016 P/E 17.0x Diluted share count 554.3 546.8 534.1 529.8 525.1 518.3 2017 P/E 16.6x

AMTD ETFC Pro Forma E*Trade Financial Shares to issue 534.1 178.4 712.4 Fee revenues Pro forma ownership 75% 25% Commissions $456 $424 $436 $499 $511 $521 Implied exchange ratio 0.636x Fees and service charges $200 $210 $242 $241 $252 $267 Principal transactions $10 $0 $0 $0 $0 $0 Funding Mix in USD (in millions) Gain on sale of loans/securities $39 $46 $40 $40 $30 $30 % Amount P/T Cost Other revenue $38 $39 $40 $42 $43 $45 Stock 75% $5,938 -- Fee revenues $743 $719 $758 $822 $837 $863 Debt 25% $1,979 4.00% Cash 0% $0 0.25% Net interest revenues Total consideration 100% $7,917 -- Interest Revenue $1,279 $1,215 $1,223 $1,347 $1,419 $1,444 Interest Expense $318 $194 $80 $79 $114 $134 Net interest income $961 $1,021 $1,143 $1,268 $1,305 $1,311 Net revenues $1,704 $1,740 $1,901 $2,091 $2,142 $2,173 yr/yr % 6% 2% 9% 10% 2% 1% Noninterest expenses $1,157 $1,203 $1,221 $1,309 $1,311 $1,352 yr/yr % 3% 4% 2% 7% 0% 3% Memo: E*Trade Bank expenses $1,008 $431 $399 $447 $448 $446 Memo: Depreciation and amortization $81 $80 $81 $82 $84 Provision for credit costs -$36 $40 $69 $0 $0 $0 Pretax income $511 $577 $749 $782 $830 $821 Income taxes $181 $233 $283 $297 $316 $312 Net income - adjusted $330 $344 $467 $455 $491 $486 yr/yr % 62% 4% 36% -2% 8% -1% EPS - Operating $1.12 $1.17 $1.66 $1.70 $1.90 $1.95 EPS - GAAP $1.00 $0.91 $1.74 $1.60 $1.78 $1.95 ROE 6.5% 6.2% 7.9% 7.7% 8.2% 8.0% Dividend per share $0 $0 $0 $0 $0 $0 Diluted share count 294.0 295.0 280.3 267.2 259.1 249.5 Adjustments to E*Trade Revenues Fee revenues 2014 2015 2016E 2017E 2018E 2019E Commissions (5% attrition phased in) -$25 -$26 -$26 Fee and service charges (5% attrition phased in) -$12 -$13 -$13 Other revenue (5% attrition phased in) -$2 -$2 -$2 Total fee revenue adjustments -$39 -$40 -$42 Bank sale Bank pre-tax income -$601 -$627 -$634 Foregone third party sweep revenue -$3 -$8 -$10 Cash held by third parties swept to IDA $11 $7 $8 E*Trade depoists swept to IDA $201 $246 $278 Total net interest revenue adjustments -$392 -$382 -$358 Other Transaction Adjustments Expense synergies $144 $288 $575 Intangible amoritization -$153 -$153 -$153 Opportunity cost of cash $0 $0 $0 Provision expense synergies $0 $0 $0 New debt Interest expense -$79 -$79 -$79 Total adjustments, pretax -$520 -$367 -$57 Total adjustments, after tax -$323 -$228 -$35 Adjusted combined AMTD-ETFC Net revenues $5,193 $5,511 $5,787 Noninterest expenses $3,360 $3,294 $3,119 EBITDA $2,244 $2,629 $3,083 Interest expense -$187 -$187 -$187 Pretax income $1,646 $2,030 $2,481 Income taxes $625 $771 $943 Less: preferred dividend -$29 -$24 -$24 Net income $991 $1,235 $1,515 Pro Forma Cash EPS $1.75 $2.09 $2.49 Pro Forma EPS $1.39 $1.73 $2.13 ROIC 2% 3% 6% Shares outstanding 712.4 712.4 712.4 yr/yr % -- 25% 23% Cash EPS Acc/(Dil) to AMTD shareholders -4% 2% 10% EPS Acc/(Dil) to AMTD shareholders -14% -6% 4%

Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 37 21 September 2016

Figure 43: Schwab – E*Trade Financial Merger Model US$ in millions, unless otherwise stated Charles Schwab-E*Trade Financial Merger Model (in millions, except per-share data)

Income Statements 2014 2015 2016E 2017E 2018E 2019E Transaction Details Schwab 110.75 Asset management/admin fees 2,533 2,650 3,019 3,397 3,782 4,032 Date 9/20/2016 Trading revenues 907 866 828 811 806 798 SCHW ETFC Net interest revenue 2,272 2,525 3,236 3,653 4,418 5,097 Current stock price $30.53 $28.13 Provision expense 3 11 -5 -30 -30 -30 Other 343 328 263 260 280 300 Shares outstanding (mil) 1,335 280 Net revenue $6,058 $6,380 $7,341 $8,091 $9,256 $10,197 2016 P/E 24.3x 16.9x yr/yr % 11% 5% 15% 10% 14% 10% 2017 P/E 21.6x 16.5x Noninterest expenses $3,943 $4,101 $4,448 $4,790 $5,095 $5,439 Market cap (mil) $40,765 $7,886 yr/yr % 6% 4% 8% 8% 6% 7% Tax rate 38.0% 38.0% Memo: Depreciation & amortization $199 $224 $225 $240 $252 $272 Interest expense $73 $92 $104 $104 $104 $104 Premium to current 0.0% $28.13 Pretax income $2,115 $2,279 $2,893 $3,301 $4,161 $4,758 Consideration for ETFC $7,886 Income taxes $794 $832 $1,074 $1,225 $1,560 $1,784 Tax rate 38% 37% 37% 37% 38% 38% Total transaction value (USD, bn) $7,886 Net income $1,321 $1,447 $1,819 $2,077 $2,601 $2,974 Preferred dividends $60 $83 $144 $156 $156 $138 Consideration received by ETFC shareholders Net income available to common $1,261 $1,364 $1,675 $1,921 $2,445 $2,836 Amount yr/yr % 25% 8% 23% 15% 27% 16% % per share EPS $0.96 $1.03 $1.25 $1.41 $1.78 $2.03 Stock 50% $14.07 Cash EPS $1.05 $1.14 $1.36 $1.52 $1.89 $2.15 Cash 50% $14.07 ROE 11.9% 11.5% 12.5% 12.5% 14.1% 14.5% Total 100% $28.13 Dividend per share 0.24 0.24 0.27 0.31 0.35 0.48 2016 P/E 16.9x Diluted share count 1,315.0 1,326.8 1,335.3 1,359.0 1,377.0 1,399.0 2017 P/E 16.5x

E*Trade Financial Fee revenues SCHW ETFC Pro Forma Commissions $456 $424 $436 $499 $511 $521 Shares to issue 1,335.3 129.2 1,464.4 Fees and service charges $200 $210 $242 $241 $252 $267 Pro forma ownership 91% 9% Principal transactions $10 $0 $0 $0 $0 $0 Implied exchange ratio 0.461x Gain on sale of loans/securities $39 $46 $40 $40 $30 $30 Other revenue $38 $39 $40 $42 $43 $45 Fee revenues $743 $719 $758 $822 $837 $863

Net interest revenues Interest Revenue $1,279 $1,215 $1,223 $1,347 $1,419 $1,444 Retail deposits $8 $4 $4 $4 $30 $44 Funding Mix in USD (in millions) Brokered cert. of deposit -- -- $0 $0 -- -- % Amount P/T Cost Customer payables $8 $5 $4 $5 $13 $18 Stock 50% $3,943 -- Total Repo/FHLB/Other borrowings $376 $234 $18 $18 $18 $18 Debt 50% $3,943 3.80% Corporate debt $113 $59 $53 $52 $52 $52 Cash 0% $0 0.25% Stock loan & other $1 $9 $1 $0 $1 $1 Interest Expense $318 $194 $80 $79 $114 $134 Total consideration 100% $7,886 -- Taxable equivalent adjustment $0 $0 $0 $0 $0 $0 Customer cash held by others $0 $0 $0 $0 $0 $0 Balance Sheet & Capital Net interest income $961 $1,021 $1,143 $1,268 $1,305 $1,311 SCHW ETFC Adj PF Tier 1 Capital $14,537 $3,860 $1,082 $19,479 Net revenues $1,704 $1,740 $1,901 $2,091 $2,142 $2,173 Assets (for leverage purposes) $201,196 $48,438 0 $249,634 yr/yr % 6% 2% 9% 10% 2% 1% Noninterest expenses $1,157 $1,203 $1,221 $1,309 $1,311 $1,352 Risk weight 28% 28% 28% 28% yr/yr % 3% 4% 2% 7% 0% 3% Risk weight assets $55,894 $13,457 $0 $69,351 Memo: Depreciation and amortization $78 $81 $80 $81 $82 $84 Provision for credit costs -$36 $40 $69 $0 $0 $0 Pretax income $511 $577 $749 $782 $830 $821 Tier 1 Capital 26% 29% NA 28% Pre-provision pretax margin 32% 31% 36% 37% 39% 38% Tier 1 Leverage 7.2% 8% NA 7.8% Income taxes $181 $233 $283 $297 $316 $312 Excess Capital @ 8% Min $10,066 $2,783 $1,082 $13,931 Effective tax rate 35% 40% 38% 38% 38% 38% Net income from cont ops $330 $344 $467 $485 $515 $509 Excess Capital Gain from disc ops $0 $0 $0 $0 $0 $0 Tier 1 Leverage - Min 5% 5% 5% 5% Preferred dividends $0 $0 $0 -$29 -$24 -$24 Tier 1 Capital - Min 8% 8% 8% 8% Net income available to common $330 $344 $467 $455 $491 $486 yr/yr % 62% 4% 36% -2% 8% -1% Tier 1 Leverage - Min $4,477 $1,438 $1,082 $6,998 EPS - Operating $1.12 $1.17 $1.66 $1.70 $1.90 $1.95 Tier 1 Capital - Min $10,066 $2,783 $1,082 $13,931 EPS - GAAP $1.00 $0.91 $1.74 $1.60 $1.78 $1.95 ROE 6.5% 6.2% 7.9% 7.7% 8.2% 8.0% Dividend per share $0 $0 $0 $0 $0 $0 Diluted share count 294.0 295.0 280.3 267.2 259.1 249.5 Adjustments to E*Trade Revenues Fee revenues 2014 2015 2016E 2017E 2018E 2019E Commissions (5% attrition phased in) -$25 -$26 -$26 Fee and service charges (5% attrition phased in) -$12 -$13 -$13 Gain on sale of loans/securities (9% immediate reduction) -$4 -$2 -$1 Other revenue (5% attrition phased in) -$2 -$2 -$2 Total fee revenue adjustments -$43 -$42 -$43 Net interest revenues Bank loan interest revenue -$149 -$114 -$78 Foregone third party sweep revenue -$3 -$8 -$10 Cash held by third parties swept to SCHW $18 $11 $13 E*trade deposits swept to SCHW $25 $22 $17 Total net interest revenue adjustments -$110 -$89 -$58 Other Transaction Adjustments Expense synergies $214 $427 $855 Intangible amoritization -$152 -$152 -$152 Opportunity cost of cash $0 $0 $0 Provision expense synergies $0 $0 $0 New debt Interest expense -$150 -$150 -$150 Total adjustments, pretax -$241 -$6 $452 Total adjustments, after tax -$149 -$4 $280 Adjusted combined SCHWAB-ETFC Net revenues $10,029 $11,266 $12,269 Noninterest expenses $6,037 $6,131 $6,088 EBITDA $4,621 $5,777 $6,846 Pretax income $3,842 $4,986 $6,032 Income taxes $1,460 $1,895 $2,292 Less: preferred dividend -$185 -$180 -$162 Net income $2,197 $2,912 $3,578 Pro Forma Cash EPS $1.70 $2.19 $2.66 Pro Forma EPS $1.50 $1.99 $2.44 ROIC 4% 6% 9% Shares outstanding 1,464.4 1,464.4 1,464.4 yr/yr % -- 33% 23% Cash EPS Acc/(Dil) to SCHW shareholders 12% 16% 24% EPS Acc/(Dil) to SCHW shareholders 6% 12% 21% Source: Company data, Credit Suisse estimates

E*TRADE Financial (ETFC) 38 21 September 2016

Companies Mentioned (Price as of 19-Sep-2016) E*TRADE Financial (ETFC.OQ, $28.49, OUTPERFORM, TP $33.0) LPL Financial Holdings Inc (LPLA.OQ, $30.02) TD Ameritrade Holding Corp. (AMTD.OQ, $33.47) The Charles Schwab Corp (SCHW.N, $30.89)

Disclosure Appendix Important Global Disclosures I, Christian Bolu, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for E*TRADE Financial (ETFC.OQ)

ETFC.OQ Closing Price Target Price Target Price Closing Price ETFC.OQ Date (US$) (US$) Rating 35 23-Oct-13 17.34 14.50 N 09-Dec-13 18.22 14.50 * 30 23-Jan-14 21.04 22.00 25 14-Mar-14 23.49 23.00 20 23-Apr-14 21.50 25.00 24-Jul-14 20.73 24.00 15 23-Jan-15 24.56 28.00 O 10 23-Apr-15 28.19 29.00 1- Jan- 14 1- Jul- 14 1- Jan- 15 1- Jul- 15 1- Jan- 16 1- Jul- 16 23-Jul-15 29.42 32.00 13-Oct-15 26.02 31.00 N EU T RA L O U T PERFO RM 22-Feb-16 22.80 30.00 REST RICT ED 25-Jul-16 24.99 R 12-Sep-16 27.20 30.00 O * Asterisk signifies initiation or assumption of coverage. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

E*TRADE Financial (ETFC) 39 21 September 2016

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 53% (50% banking clients) Neutral/Hold* 29% (24% banking clients) Underperform/Sell* 18% (44% banking clients) Restricted 0% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and- analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Target Price and Rating Valuation Methodology and Risks: (12 months) for E*TRADE Financial (ETFC.OQ) Method: Our current target price is $33. This valuation is based on our estimate of $2.00 in long term earnings power and 15x warranted multiple plus $2.56 per share of DTA which supports our OUTPERFORM rating. Risk: Risks to our $33 ETFC price target are declines in retail investor trading activity and declines in commission levels due to industry pricing pressure. In addition, the company is also exposed to interest rate risk and credit risk through its banking operations. We rate ETFC shares OUTPERFORM. Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (ETFC.OQ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (ETFC.OQ) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (ETFC.OQ) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (ETFC.OQ) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (ETFC.OQ) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ETFC.OQ) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (ETFC.OQ) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (ETFC.OQ). Credit Suisse has a material conflict of interest with the subject company (ETFC.OQ) . Credit Suisse is acting as a financial advisor to E*TRADE Financial Corporation (EFTC) in relation to its potential acquisition of Aperture New Holdings, Inc., the ultimate parent company of OptionsHouse. For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=248761&v=233htcsb3wtdasx0canvufsj2 . Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (ETFC.OQ) within the past 3 years. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse Securities (USA) LLC...... Christian Bolu ; Richard Fellinger ; Hoang Nguyen

E*TRADE Financial (ETFC) 40 21 September 2016

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E*TRADE Financial (ETFC) 41 21 September 2016

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E*TRADE Financial (ETFC) 42