Schwab Interested in E*Trade: Is E*Trade Interested in Schwab?

I will make this article short and sweet.

As per the latest reports, Schwab (SCHW) has stated that they are interested in E*Trade (ETFC) if E*Trade were a willing seller.

Here is the link to the news report.

In a previous article I wrote that E*Trade shareholders like myself were surprised about the negative twist on an otherwise great earnings report by E*Trade, designed to drop the stock price in seeming preparation for a private equity offering leading to "substantial dilution for current shareholders"; this interest expressed in E*Trade by Schwab offers yet another alternative that CEO Layton must exhaust fully before handing over a huge chunk of the company through a secretive private equity offer.

E*Trade management has the fiduciary duty towards the current shareholders to exhaust all possible alternatives before embarking on substantially dilutive equity offering. In November 2007, there were a large number of parties interested in E*Trade. In addition to Schwab, each of those parties should be approached to evaluate alternatives to a "dilutive equity offering". Many of those parties would now be interested in E*Trade, given that E*Trade's loan portfolio is on the mend.

Other alternative would be to sell a part of mortgages in exchange for current debt.

I have great faith in CEO Layton's ability to investigate and arrive at best alternative for E*Trade shareholders going forward.

Kudos to Seeking Alpha for providing voice to an otherwise powerless common shareholder.

Disclosure: Long ETFC. No position in SCHW

Comments

[User 405427:]

Schwab is buying Etrade the stock will soar. Earnings report was a twisted mess by the media. They are making a huge come back. Will be a huge value for Schwab.

May 01 07:42 AM

[jakecambodia:]

i own 5000 @1.70 shares of etrade. it is harsh for the past 3 days. *cried*

May 01 08:17 AM

[jakecambodia:]

i own 5000 shares. i would like to see schwab buying etrade. the idea etrade selling to schwab or any private firm will never ever happen.

May 01 08:20 AM

[China Expert:]

I closed all of the E*Trades after watching ETRD front run most of my orders of 5K or more for about a year. If was so obvious that they would "penny" me all day long and often nothing got executed when I simpy wanted to hit the large advertised bit or offering. I often had to personally call the desk too make the trader do the right thing. On March 4, 2009, E Trade agreed to pay a fine of $34 million for front running. I was so elated when I saw that. You had to be blind not to see the obvious front running if you were a client. E*trade is run by a bunch of crooks. No professional trader would want to do business with these guys.

May 01 09:12 AM

[Axolotl Folly:]

E*Trade shareholders who are frustrated with the current management (myself included) can and should vote against the re-election of directors at the coming annual meeting on May 28th. You will have received your proxy voting instructions via e-mail, and you can vote online. If nothing else, it will be a protest vote.

Common shareholders are NOT completely powerless, even though it feels that way. Look at the the recent Bank of America annual meeting where shareholders stripped Ken Lewis of the Chairman title, in a victory (albeit small) for corporate governance.

May 01 09:18 AM

[bnme:]

Axo,

I'm not exactly sure why you are frustrated with current management. They've done a pretty good job in my opinion trying to rid themselves of the toxic assets they hold, which was due to previous management.

Secondly, what is up with their TARP request taking so long? The government should either give them a yes or a no ASAP, so they and we can evaluate what to do next.

May 01 09:44 AM

[danS:]

You wrote:
"Other alternative would be to sell a part of mortgages in exchange for current debt."

How much do you think they could get for the mortgages? I'm really wondering if the office of thrift services is mad that they already haven't done this. It may be a profitable move that Citadel is blocking. They are paying $275 million a year in interest to Citadel (12.5% interest on 2.25 billion in debt). The question I have is would they lose more than $275 million dollars in annual revenue if they sold enough of their mortgage portfolio to pay off the Citadel debt

May 01 11:12 AM

[Stockmajor:]

Will ETRADE be able to sell some of its mortgage portfolio to the new puplic-private partnerships once they are up and running?

May 01 02:49 PM

[tgofirstclass:]

HIRENDU, Thank you for keeping E Trade in the limelight. As we shareholders know, Ken Griffin and Citadel have much power on Wall Street. Money and greed seem to be at work behind the scenes here. The public is well aware of what Wall street has done to our savings, home equity, and 401k's. Fudiciary duties can be strongly influence by those with power and wealth. I own a large number of shares, buying on Layton's statement of "share holder friendly" and the fact that that delinquincies had improved. It was a great Q1, why miss by a penny? You are in a position to help protect the small investor here. PLEASE keep up the good work.

May 01 09:30 PM

[tgofirstclass:]

Hirendu, please keep up the great work, Wall Street has cost many Americans 60 to 80% of their life savings, done so in a fraufulent manner. You are a key means of getting exposure for all ETrade shareholders, and most IMPORTANT, getting the word to LAYTON.

May 03 03:44 PM

[rl:]

agreed, the cc is positive on all fronts except for that Layton likes to raise more capital cushion for the bank and may dilute existing shares.

here's a post that i summarized the CC in yahoo message board to reduce the reading if anybody cares:
messages.finance.yahoo...

the language used in the cc referring to OTS capital request is also not negative and here's my post for that:
messages.finance.yahoo...

Layton said: "We are looking at a significant range of alternatives to generate capital, large and small..... to replenish the bank's capital cushion, we will need to pursue financing alternatives, including equity issuances through public or private transactions as well as asset sales or other special transactions." the statement fully explains the intention to pursue "significant range of alternatives to generate capital" and i think dilution is still a last resort type of action. of course, we'll just have to trust ETFC to make best judgments pending on market condition. the only concern i have is that "all 19 stressed tested banks" will also be raising capital and that may cause some credit shortage.

It is my believe that Layton believes and did gave a positive report but the market's reaction afterward is what really twisted the reality. people looked for the worst and presume the worst as they tried to justify the market reaction which was largely manipulation in my opinion. i also believe that this may be the reason that the “surprised” Layton wrote the letter to etfc customer/shareholders to help explain the company's position (posted on e*trade).

May 03 04:07 PM

[jbmaria:]

rl,a year ago you wrote:



rl27 CommentsFollow
with etfc first lien performing worst then expected, it is also expected that it would perform better over time as the storm blows over. even if the credit market continues to crumble, the majority of the stressed borrowers would have already folded. in the near term, we should expect less then "wow" results from etfc but it is very hard for me to see etfc not to at least double by next year. i'm trying pretty hard not to build a high expectation but at the same time, i'm expecting to at least triple my investment in the next 12 month period. am i expecting too much? is my thinking overly optimistic? if i triple my money in a year, is that not an "wow"? Apr 28 01:17 PM|Report abuse|Link|Reply00

Your credibility is a tad thin.
Just an observation from reviewing your historical comments on ETFC.

May 04 10:13 AM

[jbmaria:]

Hirendu,
seriously,
are you dating Cindy???

seekingalpha.com/autho...

May 04 10:17 AM

[Al the pal:]

Are E-trade shareholders that naive that they think the company that is in financial distress that must raise capital fast is going to sell for a premium? How laughable. If Schwab or anyone else buys out ETFC it will be for pennies on the dollar because of all the toxic loans and high debt that comes along with the company. It will be a buy under or a cash infusion for majority control of the company where shareholders get nothing except dilution. Your $1.60 stock will be worth 16 cents if it remains a stand alone company. That are the two most positive situations. The other alternative is a foreclosure by the FDIC and shareholders get nothing and someone buys what pieces of ETFC they want from the feds for pennies on the dollar.

May 05 03:46 PM