STRATEGIC PARTNERS
January 26, 2003
MENLO PARK, Calif. -- Two days after it reported improved fourth-quarter 2002 earnings of $30.4 million, online brokerage E*Trade announced the resignation of Christos Cotsakos, its chairman and chief executive.
E*Trade had upset many investors when it disclosed April 30 that Cotsakos had received about $80 million in 2001, even as the company's stock fell steadily. Under pressure from an investor lawsuit, Cotsakos took the unusual step of returning about $37 million of the $80 million pay package and drastically scaled down a new two-year contract to one in which he received no salary and a bonus tied to company performance.
(See related story E*Trade chairman's compensation is renegotiated)
Cotsakos' resignation comes more than a year before that renegotiated contract ran out. He will be replaced by two people: President Mitchell Caplan will take over as chief executive and board member George Hayter, a former official of the London Stock Exchange, will become the company's first non-executive chairman.
Several analysts and investors said they were pleased with Caplan's selection. Caplan has been E*Trade's president since April 2002 and founded its banking subsidiary, which has contributed a growing amount to the company's revenue. E*Trade shares rose slightly upon the announcement of Cotsakos' resignation and ended Jan. 24 at $4.49.
"Now you have the guy who put the bank together running the company, and he has a record of success," said William Fries, an investor with Thornburg Investment Management, which owns E*Trade shares. Fries said he hopes Caplan will further rein in spending and find creative ways for the bank to earn fees.
The 54-year-old Cotsakos is credited with making E*Trade a brand-name financial services company. But he also became a symbol of corporate excess and the backlash against it because of the outcry over his 2001 pay package.
Cotsakos told the San Jose (Calif.) Mercury News that, contrary to some published reports, he was not fired but found this a good time to leave to pursue writing and teaching business to underprivileged kids. He said he's proud of what he and his team built during his seven-year tenure.
"Our brand has not only survived, it's emerged, and changed the way financial services look," he said.
Cotsakos said it was well-known within the company that he has been talking "for some time" about leaving E*Trade, waiting only for the right management to succeed him.
By resigning, Cotsakos gets $4 million in severance. He loses some of his unvested shares of restricted stock and certain unvested stock options. Cotsakos continues to own 3.9 million shares, or 1 percent, of E*Trade's shares.
That could mean he gets more in severance in 2003 than he would have gotten if he stayed. Only if the company met certain performance measures -- which aren't specified in the renegotiated contract -- would Cotsakos have gotten a bonus targeted at $4 million.
E*Trade is the nation's third-largest online trading firm and has expanded in recent years from its discount broker roots to become a broad-based online lender, broker and banker.
The company owns E*trade Access, which manages a network of some 11,000 ATMs, including the former Card Capture Services portfolio.
In 2002, E*Trade lost about $186 million on revenue of $1.3 billion.
