Mitchell H. Caplan Chief Executive Officer

Dear E*TRADE FINANCIAL Shareholders:

"Challenge the Ordinary... Be E*traordinary" — it's our new tagline and it truly captures the spirit of E*TRADE FINANCIAL customers, investors and employees. I am happy to report that in 2004, we lived this mantra, and by doing so delivered robust improvement in our financial performance, posting record profits for the second consecutive year.

Since our transformation from an online trading business into an integrated financial services provider, we've tackled the challenge to grow profitability by controlling costs, increasing customer engagement and standardizing operations within a unified global technology platform. As the numbers demonstrate, we have succeeded across the board.

By unlocking efficiencies, we can focus our attention on the challenge of attracting new accounts and assets and increasing the products-per-customer ratio. To do so, our greatest opportunity lies in continued integration of trading, investing, banking and lending offerings to create innovative solutions for key customer segments.

Our core differentiator is our ability to leverage relationships with our retail customers, while capitalizing on the opportunities created between our retail and capital markets businesses. Through true integration of the entire business, we have discovered even better ways to serve our customers and to deliver value to our shareholders.

In 2004, we saw net income from continuing operations rise 71 percent and earnings per share rise 80 percent. This growth represents important progress toward our goal of creating long-term shareholder wealth, even amid varying economic conditions. As proud as we are of our 2004 results, they are a stepping-stone in a process that can be — and will continue to be — measured over the long term.

We will reach our long-term milestones by leveraging technology to create new opportunities for our customers every day. We believe our growth opportunity continues to be tremendous. As more and more consumers come to understand the value available to them through the efficient use of technology to integrate financial services, we anticipate a consistent influx of consumers handling more of their needs online.

To that end, there are two words that resonate with our leadership team ― compelling and differentiated. At E*TRADE FINANCIAL, compelling translates to having the right mix of price, functionality and service in each and every solution we deliver to our customers. And differentiated means doing what other companies can't or won't do — finding new and ingenious ways to blend high-value offerings to better satisfy customers with a level of efficiency that creates a barrier to entry for competitors.

By understanding the importance of being both compelling and differentiated, by adhering to our vision and by executing with discipline and focus, we gain the power to be the first and best choice for retail and institutional customers, the power to set the standard for clarity in our pricing and customer service, and the power to be the kind of company that our shareholders expect us to be — innovative, efficient, growth-oriented and profitable — over the long term.

Mitchell H. Caplan
Chief Executive Officer