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E*Trade Enters the Research Business

E*Trade Group Inc., continuing its push to become something more than just an online brokerage, is expanding into the somewhat troubled world of proprietary research and stock analysis.

Menlo Park, Calif.-based E*Trade named Martin Evans as its director and head of global research and said it has hired a team of research analysts from Credit Lyonnais.

Evans will be responsible for establishing institutional proprietary research "with an emphasis on objective and unbiased analysis in a broad range of key sectors," the company said.

Unbiased, of course, will be key given the ongoing investigations of various investment banks and their analysts.

New York Attorney General Eliot Spitzer has subpoenaed most of Wall Street's biggest investment banks in a widening probe of research objectivity - i.e., were investors misled by analysts in order to inflate revenues on the investment side of the business. The Securities and Exchange Commission and a multi-state task force, co-headed by Spitzer, also are looking into the matter.

Last month Spitzer obtained a court order requiring investment firm Merrill Lynch to disclose to investors the nature of its relationship with investment banking clients and provide more context for its stock ratings.

Nevertheless, E*Trade is confident that it has made the right decision and said that its move is expected to "drive revenue growth through cross-selling and up-selling opportunities to existing customers and attract new clients."

"Our clients' need for independent research has become more apparent as investment banks are faced with conflicts of interest arising from the way equity research is produced," said Jarrett Lilien, chief brokerage officer at E*Trade. "By establishing a proprietary, unbiased research offer, E*Trade Financial reinforces its commitment in delivering best-of-breed products to its clients."

Starting in London, Evans will manage a team of equity research analysts to cover key European sectors with plans to expand the offering globally, E*Trade said. The company will introduce the offering to U.S. institutional clients in the third quarter of 2002.

Evans had been head of European Research at Credit Lyonnais in London where he managed the research operations.

The team of analysts will join the company by end of May and Evans will join them within six months. The development of institutional proprietary research follows the recent launch of E*Trade's market making service in the UK.

E*Trade has been in expansion mode for some time; last month it snapped up privately held Tradescape for $100 million in stock and bought online trading assets from A.B. Watley for another $5 million.

In January the company launched its own radio content syndication service . That same month it launched a planning and advice product that includes financial forecasting tools and the ability to consult directly with personal financial planners through Ernst & Young.

E*Trade has said it expects to earn 45 cents to 55 cents per share from ongoing operations in 2002.