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E*Trade Financial Corp. (NASDAQ: ETFC) imploded today after the company warned of worse-than-expected earnings and a Citigroup (NYSE: C) analyst said that the company might have to file for bankruptcy protection.Shares of the company, which has cut earnings forecasts four times this year, plunged to levels not seen since 2003. E*Trade, which lost $58.5 million, or 14 cents a share, in the period ending September 30, expects 2007 profit of between 75 cents and 90 cents, a range big enough to drive a tractor-trailer through. Shares of the New York-based company have plunged 53%.
In a note to clients, analyst Prashant Bhatia said that poor management has "put the viability of the franchise at risk" and that "bankruptcy risk cannot be ruled out," according to Bloomberg News. He cut his rating on the stock to "sell" from "neutral."
Of course, E*Trade is trying to accentuate the positive, pointing out that in October, total client assets rose 4% sequentially to $226.7 million. More worrisome, though, is the 4.8% rise in margin debt balances and the 1% jump in average margin debt.
"As a matter of fact, we could absorb an immediate write-down in excess of $1 billion and still remain well capitalized," E*Trade President and Chief Operating Officer Jarrett Lilien said in a message to customers posted on the company's Web site, according to Reuters. Sounds like a bit of macho posturing, no?
Even if it doesn't go bankrupt, E*Trade is in a downward spiral that will last for months and maybe years. About the only hope that's left is for either a large financial institution or a private equity shop to buy the company. The only problem with that scenario is that they have subprime woes of their own.
To be sure, the ubiquitous commercials from E*Trade and Countrywide Financial (NYSE: CFC) may start to disappear from CNBC and other cable networks in the coming months because the companies will no longer be able to afford them.
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Reader Comments (Page 1 of 2)
11-12-2007 @ 5:02PM
Michelle said...
What happens to one's investments when the brokerage firm at which everything is housed goes bankrupt? Several of my family members have their investments at E-trade and this is worrisome. E-trade doesn't technically own these investments, but would everything be frozen?
11-12-2007 @ 5:50PM
Americas Watchdog said...
We are Americas Watchdog & we have the Corporate Whistleblower Center & we are interested in hearing from anyone with an E-Trade account who had a margin account. The question is, was E-Trade using your "margin account" when you were not?
1-14-2008 @ 8:08AM
Lee kaplan said...
E Trade deserves to go bankrupt. I was a former client whose margin account (without even notifying me) was liquidated by E Trade. I had a no load account with another brokerage firm of about $3,500 that I purchased in 2003 that I never touched. ETrade bought that company then imposed all manner of arbitrary maintenance fees, as much as $40 a quarter simply to keep my name in a database. When I tried to transfer my account to another no load brokerage house they wanted to charge me excessive transfer fees so that there would be no funds left in the account. Then they liquidated my margin account without so much as a phone call and took my money. They claimed they tried to call me but there was no message on my phone answering machine and no email record. After they liquidated what little I had left, they sent me a bill for $225 then $245 for "maintenance fees" even after they stole my money. I instructed them to close the account but they refused, saying if I did not pay the fees, they would keep adding interest.
I refused to pay. Every quarter they send me a statement adding interest (then interest on interest) claiming I owe them more money. I told them to close the account and sue me in small claims court for the money they wanted, but they just keep billing me over and over. They they wrote off $65 and still refused to close the account to keep billing me. I am not the only one this happened to. I wrote their legal department and they refused to send it to their lawyers. sending me the same repetitious nonsense from customer service. There's a class action lawsuit somewhere for some sharp lawyer on this as I am certainly one of many victims. The company is run by crooks,and I am not surprised they are going under. the Internet is full of other victims ike myself. ETrade should go bankrupt.
11-12-2007 @ 8:05PM
Sheldon L said...
How can they survive when there bread and butter trading is being given away by many institutions like Wells and BofA. When the entire banking industry is under siege only the strongest will survive. Does that description fit E-Trade? Are they among the strongest?
11-13-2007 @ 8:39AM
James said...
I'm going to stick with E-trade for now. They offer the best trading platform and seem to always be ahead of the curve on new products for their customers such as global trading. I may even buy their stock.
11-13-2007 @ 8:38AM
Jeff said...
have an acct with e-trade would like to see an answer to michelle's question about what happens to my account if e-trade goes out of business? Thx
11-13-2007 @ 8:38AM
Sue said...
How will my accounts and investments be affected by this? I'm new to trading and would like an answer.
11-13-2007 @ 8:37AM
tk ellis said...
Sir, I just can't believe you anymore. You gave great information when things were going great during aug 07 and that all your loans were AAA federally secured (conforming loans) so I bought your stock. Did I buy it; 1000's of shares and then it went lower but you kept on giving great buying signals of really not having any impact. The market was just going down as all stocks were then I would buy some more. WOW!! was I shocked when I saw your Sept statement. My question is will you honor stock buyers of your company when you were giving strong signals and then you nosedived. Don't leave me out there hanging with over $50,000 in your stock. Don't create a gap of trust with me and other stock buyers because you were giving all the right signals to buy. Kerby Ellis Tn.
11-13-2007 @ 9:41AM
Paul said...
I also have a margin brokerage account consisting of stocks and cash and am interested in what will happen to my assets in case of bankruptcy.
11-13-2007 @ 8:40PM
Americas Watchdog said...
If you had a margin account at E-Trade just e-mail me at AmericasWatchdog@AOl.Com. Our attorneys want to see if E-Trade was using your margin account when you were not. We think the other on-line traders are doing things like this. Its a big concern for us.
1-07-2008 @ 8:36AM
Anthony said...
American watchdog,
Leave E-trade alone.
Its January. They are still in buisness
There has been a cash infusion. Please go focus on Citibank or H&B Block
11-13-2007 @ 9:41PM
DIAMONDGAL001 said...
I TOO, HAVE MONEY AND MY STOCK PORFOLIO AT
E TRADE. WAS EVEN GOING TO BUY SHARES OF E TRADE TO DAY, BUT BACKED OFF.
SHOULD WE TRANSFER TO ANOTHER COMPANY?
1-20-2008 @ 8:35PM
Johnny M said...
Yes, check out Scottrade or Ameritrade. Schwab is a little pricey.
11-14-2007 @ 12:19PM
mike said...
Trader be carfull!
Look at the bankrupt announce of silicon foundary Provigent close related to Qualcomm. Domino effects to all e-com.
A friend.
11-16-2007 @ 10:11PM
countdowne said...
ETrade is NOT going out of business, people! I've had an account with them since 1995 which has grown thanks to smart trading to a 7-digit account. I am not a US resident and ETrade is a great brokerage.
It is, however, a horrible stock to invest in long-term because every now and then a competitor (Citi this time) comes out with these silly and irresponsible reports whose sole aim is to drive the stock down and try to provoke a run on ETrade.
Won't happen, sorry.
12-13-2007 @ 1:33AM
Jim Steele said...
A lot of people seem to be asking the same question - what will happen if E*trade goes bankrupt. Irritatingly though, I have yet to see an answer. Is there anyone from E*trade involved in this chat as I to would truly like an answer to above - multiply stated question:
Are all/or any of my accounts at E*trade (from brokerage to savings and cds) in danger of being frozen or held outside of my control in event of E*trade declaring bankruptcy?
12-14-2007 @ 1:38AM
dave said...
You people are all fools. First of all, I predicted E-trade's problems when I saw that it wasn't cutting it any longer with online commissions, hence the desperate move to expand into banking. You see rookies, ever since the SEC clamped down on online brokers and required them to fill orders and show time and sales, they have all been getting killed because they were screwing you all on fills before and that was how they were making money. The fact is that the worst move by the SEC was to allow access to the market to non-licensed pros. It brings more dumb money into the market and has turned it into the world's biggest casino. Online brokers like E-treade try to convince you that you can do ity yourselves but you can't. It's hard enough for pros to navigate the markets. Eventually, 95% of you will get destroyed. The 5% will survive via luck. Fools and their money will soon part.
Regards,
Retired Wall Street Trader
1-10-2008 @ 12:33PM
sam said...
First of all, I feel that it is presumptuous and idiotic to assume all people are fools. Possibly you’re a retired trader who made millions or maybe even more. Although my guess is, you’re a person who is a loser and someone who lost big. I believe in our economy. I do not believe that it was built by fools or for fools. I will agree, some people need guidance in their investment choices, but by no means does this allow us to denigrate their character or be disrespectful. As for your prediction, I feel that it is more of an opinion. So that leaves me with a question for you “retired trader”. What is the old adage about opinions? And by the way, why are you retired? Trading is like golf, if you’re good, you can play till you die!
12-20-2007 @ 9:52AM
countdowne said...
Citibank is as likely to go bankrupt as ETrade.
Read in full this long but very interesting article:
http://news.bbc.co.uk/2/hi/business/7086909.stm
12-31-2007 @ 8:35PM
Keith said...
I have an etrade account. Your bank deposits are insured up to $100,000 per account. The brokerage accounts are insured up to $500,000
Etrade would be bought out instead of bankrupt.