E-Trade Invests In Net Bank

E-Trade Group is linking forces with a former Robertson, Stephens CEO to tap into the expected growth of the online underwriting market by investing in a Internet-based investment bank.

The online broker (EGRP) on Monday said it will own approximately 28 percent of the Newport Beach, Calif.-based bank, E-Offering.

E-Trade's stock spiked 16 3/4 on the news to 105 1/4, after climbing 11 percent Monday on its quarterly earnings report.

E-Trade did not disclose the dollar amount of its investment in the virtual investment bank, or that of Sandy Robertson, founder and former CEO of Robertson, Stephens.

E-Trade did say it has the option of increasing its total stake to 51 percent.

Plans are for E-Offering to underwrite initial public offerings this year, beginning with stock underwritings of between $25 million and $50 million, E-Trade said in a release.

E-Offering said it plans to conduct IPO road shows, share distribution and research dissemination over the Internet. Moreover, the company intends to distribute up to 50 percent of every IPO to online retail investors.

E-Offering said it plans "to charge companies less than the 7 percent of gross funds typically generated by investment banks for IPOs." The broker said it participated in more than 25 IPOs in 1998.

Another banker, Walter Cruttenden III, E-Offering's founder, will serve as president of the new company. Robertson cannot assume a management role at the bank until his current non-compete agreement with Robertson, Stephens expires in about 12 months, E-Trade said.

E-Trade is also aiming at the institutional investment market. On Jan. 7, the company announced a 25 percent stake in privately-held Archipelago, an electronic communications network. Goldman Sachs also purchased a 25 percent stake.

Written By Emily Church, CBS MarketWatch