WASHINGTON - After gaining government approval Tuesday, E-Trade Group Inc. plans to close its $1.1 billion deal for Telebanc Financial Corp. today or later this week.

The merger brings together E-Trade Securities Inc., the on-line brokerage with $30 billion of assets in more than 1.5 million customer accounts, and Telebank, a branchless thrift with $2 billion of deposits held by 100,000 customers. The thrift will be renamed E-Trade Bank and continue as a national low-cost marketer of retail banking services.

The Office of Thrift Supervision withheld its approval until one of E-Trade's owners diluted its stake.

The agency's overriding concern was that 25% of E-Trade had been owned by Softbank America Inc., an Internet holding company that also owns pieces of Yahoo Inc. and E-Loan Inc. Any shareholder of a thrift holding company that owns 25% or more is considered to have conclusive control and must itself apply to be a thrift holding company.

The Telebank deal, however, would dilute Softbank's stake in E-Trade to just below 25%, according to E-Trade spokesman Patrick Di Chiro. Softbank is a Newton Center, Mass., subsidiary of Softbank Corp. of Tokyo. "Softbank did not have to sell any shares," he said.

Menlo Park, Calif.-based E-Trade's stock fell 4.7% Tuesday, closing at $26.6875. Arlington, Va.-based Telebanc's stock was flat, at $27.8175. The deal, announced in June, was approved by shareholders Dec. 29.

The OTS plans to keep a close eye on the new E-Trade Bank, requiring its top executives to update regulators every quarter on "financial performance, business strategies, and any new activities," according to the order.

The OTS also made clear that cross-selling to brokerage or thrift customers must follow all existing and future regulations. "Internal audit and compliance departments of both entities will conduct ongoing reviews of cross-marketing activities, including customer privacy considerations, for appropriateness and compliance with regulatory standards," the agency said.

E-Trade Bank must disclose to consumers which funds are backed by the government and which are uninsured investments, the OTS said. E-Trade Bank must clear its proposed Web site disclosures with the agency, "including disclosure pages viewed when transferring between Telebank's and E-Trade's Web sites."

Telebank also agreed to expand its responsibilities under the Community Reinvestment Act. Telebank does not make loans; it buys them and mortgage-backed securities. For CRA purposes it has bought securities tied to low- and moderate-income loans in Arlington.

But in a Nov. 20 filing to the OTS, the companies agreed to buy CRA-qualified mortgage-backed securities nationally. E-Trade Bank aims to have CRA assets equal 6.7% of total assets by the end of 2001, up from 4.4% on Sept. 30. A financial education program will also be established through the Boys and Girls Club of America.

The companies had pushed for regulatory approval by Dec. 31, because on that day either party could have walked away without penalty.

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