E-Trade Group Inc. and Telebanc Financial Corp. separately announced strong quarterly earnings results on Wednesday, setting the stage for healthy growth as they pursue their plan to become a one-stop shop for on-line financial services.

E-Trade's better-than-expected earnings and Telebanc's 328% gain in quarterly net income bode well for the combined company, which officially came into being Jan. 12 when the Office of Thrift Supervision approved the merger of E-Trade's Internet brokerage with Telebanc's branchless bank. "We are sure that the whole will be greater than the sum of the parts," said Kathy Levinson, president and chief operating officer at E-Trade Group.

E-Trade's net loss of $38.1 million, or 15 cents a share, for the quarter that ended Dec. 31 beat the expectations of analysts surveyed by First Call Corp. by 6 cents a share. Arlington, Va.-based Telebanc, which is to be renamed E-Trade Bank, reported net income of $2.8 million, or 8 cents per share, excluding one-time charges. First Call said it had no consensus estimate for the quarter, because analysts had stopped covering Telebanc as a separate company after the merger was announced.

Telebanc's net income for the year came to $10.3 million, excluding charges, up from $1 million in 1998. Menlo Park, Calif.-based E-Trade did not report annual results; its fiscal year ends Sept. 30.

In one of the first examples of the new products the combined institution plans, E-Trade this quarter will offer a single log-on for on-line brokerage and bank accounts, and a Web page showing consolidated account information.

But E-Trade faces challenges in trying establish core financial services relationships with consumers, instead of just offering low-cost brokerage services, said L. Russell Keene, equity analyst Kat Putnam, Lovell, de Guardiola in New York.

"You need a blended distribution platform, including branches or some other kind of physical presence," said Mr. Keene, who called E-Trade's business model "ahead of its time."

E-Trade is considering how to address its lack of a brick-and-mortar presence, said Christos M. Cotsakos, chairman and chief executive officer of E-Trade. He declined to elaborate.

Both E-Trade and Telebanc demonstrated an ability to keep marketing costs under control last year even as they significantly expanded their customer bases.

Mr. Cotsakos highlighted in a conference call the company's ability to add a net 330,000 on-line trading accounts in the latest quarter, bringing the total number of accounts to almost 1.9 million. The merged company's total is more than two million, Mr. Cotsakos said.

Account growth came even as E-Trade managed to keep the acquisition cost per customer at $289 in the latest quarter, below many of its on-line brokerage competitors. For the same period a year earlier, account acquisition costs were $287.

"You can't just throw money at account acquisition like so many dot-com companies have done," Mr. Cotsakos said. "It has to be a total, focused effort. We spent almost four years perfecting the marketing machine."

Telebanc quadrupled its marketing budget over the past year in a quest to accelerate growth in deposits, which reached $5 billion, up from $1.1 billion at yearend 1998. Telebanc's coast-to-coast marketing campaign included television, radio, billboard, and Internet advertising. Even as it upped spending, Telebanc's account acquisition costs fell to $182 per customer, from $233 in 1998.

The success of the marketing effort will not be lost as Telebanc changes its name, said Mitchell H. Caplan, its president and chief executive officer. "You've got to back up and look at who has the stronger brand," and that, Mr. Caplan said, is E-Trade.

Mr. Caplan said Telebanc is embarking on a three-month transition period in which it will continue marketing under the Telebanc name but establish its status as an E-Trade company. At the end of that period, the name will change, he said.

The addition of federally insured banking services through the Telebanc acquisition is only one part of E-Trade's strategy of diversifying its revenues away from domestic on-line stock transactions and gathering more of consumers' assets, Mr. Cotsakos said.

For example, revenue from investment banking doubled in the latest quarter as E-Trade distributed shares in more than 60 public offerings to its customers, compared with 33 public offerings in the previous quarter, Mr. Cotsakos noted.

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