E*Trade: Very Undervalued 66 comments
-
Font Size:
-
Print
- TweetThis
E*Trade (ETFC) is just 3 trading days away from its earnings report. Next week will be exciting for investors. I shall stick to my guns and stay invested in both my own account and the fund I manage.
I believe ETFC is very undervalued. When I look for undervalued stocks, I look at the Price/Sales ratio which should be below 1.5 to be undervalued and below 0.75 to be very undervalued. ETFC's Price/Sales ratio is just 0.66, based on trailing 12 month sales. TDAmeritrade (AMTD) has a P/S ratio of 4.93 based on trailing 12 month sales. Charles Schwab (SCHW) has a P/S ratio of 4.79 based on trailing 12 month sales
Another important issue is sales growth and the rising rate of quarterly sales growth. To evaluate this, the change from this quarter last year to the present quarter (-4.4%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (-22%) of the current year.
ETFC is undervalued as it shows a rising trend in the reported earnings for the most recent quarters. ETFC's earnings per share for the past 2 quarters ( -0.41 and -0.22) have been increasing. The current earnings estimate for next week is -0.08. Earningswhispers has ETFC at 100% chance it will beat the estimate for next week.
ETFC is also trading well below book value of $2.67 a share. AMTD has a book value of $5.76 and is trading at $19.84 a share. SCHW is trading at $18.02 and has a book value of $3.97.
In September, ETFC had three major analysts turn bullish and raise their opinions and price targets by substantial percentages. Below are the detailed analyst reports.
September 14, 2009
Citigroup upgrades E*TRADE (Nasdaq:ETFC) from Hold to Buy, also raising its price target from $1.50 to $2.30.
The firm reduced its FY09 and FY10 loss estimates from $0.52 and $0.15 to $0.43 and $0.09, respectively, saying the recent $1.7 billion debt exchange has eased capital concerns. The Street is currently looking for a FY09 loss of $0.65 and a FY10 loss of $0.02. Citi sees loan losses through 2012 of $6.4 billion, or about 20% of E*TRADE's mortgage portfolio, but also expects higher rates of provisioning during the next ten quarters despite slowing 30-89 day delinquency trends. As E*TRADE's portfolio continues to stabilize, Citi believes there could be an increased likelihood for a potential takeover bid by competitors like Charles Schwab (Nasdaq: SCHW) or TD Ameritrade (Nasdaq: AMTD).
September 15, 2009
FBR Capital bumped their price target on E*Trade (Nasdaq: ETFC) from $2.00 to $2.25, reiterating their Outperform rating, citing increased confidence in E*TRADE's return to profitability and the improving state of credit and capital at E*TRADE Bank.
FBR commented, "Notwithstanding strong client activity in August, investors should focus on evidence of continued improvement in delinquency trends in E*TRADE's $8.8 billion HELOC portfolio, as well as stabilization in delinquencies in the $11.4 billion one-to four-family portfolio." The firm said in HELOC, total delinquencies declined 7.2% quarter to date while early-stage delinquencies held steady. The noted that delinquency trends in the one-to four-family mortgage portfolio were better than expected, as total delinquencies were up just 0.4% to $1.68 billion, loans 30 to 89 days past due fell 6.2% to $528 million, and loans 90 to 179 days past due declined 9.2% to $404 million. Loans delinquent greater than 180 days rose 12.2% to $755 million. E*TRADE expects total net charge-offs of between $350 million and $375 million during 3Q09, down from $386 million in 2Q09.
September 18, 2009
Goldman Sachs upgrades ETrade from Neutral to Buy and raised their 6-month price target from $1.70 to $2.30. The firm cited improving trends in the bank and broker segments.
The firm said, "With improving delinquency trends in the home equity line of credit portfolio and solid brokerage trends, E*Trade appears to have turned the corner in its performance and we estimate the shares have 35% upside from current levels."
The firm also cited 10% probability to a potential take-out, which has increased in recent days as ETFC has signaled it will replace current CEO Don Layton.
David Trone, an analyst at Fox Pitt Kelton Cochran Caronia Waller, also believes that a sale of the company's brokerage operations is becoming more likely. Between the unwinding of the bank subsidiary, a sale of the brokerage operations and the debt repayment, that would leave ETFC shareholders with $1.68 a share in cash proceeds for shareholders, Trone writes in a note in which he upgraded the stock to in line.
You decide if you think the analysts are correct. Given all the recent buy rating upgrades, ETFC now at $1.62 doesn't reflect any of the analyst rating changes. New investors buying now get a huge discount to ETFC's fair value.
If you post remarks please disclose if you are long or short.
Disclosure: Long ETFC, AMTD and GS.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 66 comments:
• Loss provisions are moderating on a quarte-over-qtr basis. Per the 9/15/09 press release, E-trade is projecting a provision for loan loss of between $300-$375 mill; vs. $404.5 mill in 2Q09 - so the provision is moderating
• stock market is back on the upswing; w/ the DOW now over 10k
• despite advertising expense being cut in half, new a/c openings are strong; with a record 2.7 mill brokerage a/c’s as of 8/31/09
• Per the 2Q09 income statement, interest income, commissions, fees, and other revs are tremendous; running around $350 mill/qtr
• E-trade is getting its groove back on. Advertising costs coming down, in 2Q09, only $25.0 mill vs. the usual $44 mill or so. Tells me they’re over the whole meltdown debacle issue.
• Per 2Q09 Balance Sheet, E-trade looks to have enough capitial to weather a few more qtrs & even years of losses; with $6.7 bill in cash & investments; and net equity of $3.0 bill. Not that they’ll have these large losses; just that if they did, they’re still coming back w/out going Chapter 11.
• And finally, the #1 reason, is E-trades 2.7 mill brokerage a/c’s which could lead to a takeover. Even w/ the 662 mill shs o/s (diluted), I think E-trade’s trading platform, name recognition, tax loss carry-forwards, and customer bases would result in an offer of around $5-10/share. Especially if E-trade could become breakeven or profitiable before the buyout.
When you play at KG's house if he offers you a cookie take it and run because just like Bernie some people do get paid but the rest end up holding the bag and almost everyone has seen the antics here. If it were an even close to honest deal here you'd be right but right now your assessment is a coin toss.
Currently I'm still long because I have some cushion on this deal but I expect if the earnings don't blow it out I'll cash in and go somewhere else. This is all rigged and I don't think there are any new suckers to be taken in left around. This is a Bernie who hasn't been locked up yet.
This company is here to stay and they have been through the worst and survived. I'm happy Etrade has stayed around this level so I can keep adding shares. Plan on adding some more this afternoon.
Good article.
Mr. Stupid
By the time I woke up to reality, it was just in time to catch the last of the drop in price, and I recoverd a little bit with put options.
This company should not be allowed to survive and the investors (account holders) should be given time to exit gracefully before they are squashed like the last covey of stockholders.
When are we going to require people in business to be responsible to their peers and custotmers?
Never probably
There, vent over.
Disclosure: Not being an emotional person, I believe too, they will survive and move up in price, that being said I must leave you now to put in my order, and the above comentary is probably correct.
Happy grins
Capt Brian
the lost navigator
Gross profit is very good relative to market cap. It may be a undervalued, but you have to gauge value relative to risk. How stable are its assets?
BTW, anybody know why Yahoo is reporting negative revenue? It seems to be a glitch.
But I am unsure about this upcoming earnings, because major banks (JPM, WFC, BAC, C etc) have all reported increasing loan losses. The same effect could apply to ETFC too.
Can someone comment on it... Should one be concerned because of this???
Regards
It will be a service to your fellow investors. Thanks.
The government rules on insider trading and disclosure are almost meaningless. Who is an honest member of congress? or the administration? Then tell me another joke.
I buy and hold stocks on the basis of a) earning growth, b) sales growth, c) the ratio of P/E to growth, and future expansion plans. Checking the CEO's history on Google helps too. Then I wait.
ETFC looks good to me, so I have been patient for 6 months.
On Oct 22 04:23 PM milo Wolff wrote:
> On ETFC: This not the first time, that stocks with attractive data
> and future prospects and news, have languished at unmoving stock
> market price, for many months. Why? I don't know. Few persons know,
> and they probably aren't telling.
> The government rules on insider trading and disclosure are almost
> meaningless. Who is an honest member of congress? or the administration?
> Then tell me another joke.
> I buy and hold stocks on the basis of a) earning growth, b) sales
> growth, c) the ratio of P/E to growth, and future expansion plans.
> Checking the CEO's history on Google helps too. Then I wait.
> ETFC looks good to me, so I have been patient for 6 months.
On Oct 22 04:27 PM redbeard20000 wrote:
> Guys, their loan portfolio is in full runoff mode. They've already
> taken the worst of the losses, they are 1-2 quarters away from the
> break even point, and this quarter they should be a net generator
> of capital at the bank. Don't forget about the debt for equity swap
> either. This will cap upside potential (I think its only a double
> in a year from now at this point) but it added tons of equity to
> the company. They now have more equity than SCHW and way more than
> AMTD, yet trade at huge discounts to both. Everyone always talks
> about the fully diluted share basis, but nobody really pays attention
> to the fact they added 1.7 Billion in equity or how thats going to
> help them 2 years down the road once their out of loan loss mode.
On Oct 22 03:43 PM EJC1645 wrote:
> To Skess11: Are Citigroup, FBR, and Goldman analysts stupid or are
> they part of the conspiracy you talk about ? I'm newly long ETFC
> but I don't want to mess around in any Bernie schemes. Tell us more.
>
> It will be a service to your fellow investors. Thanks.
On Oct 22 04:19 PM protrader101 wrote:
> ETFC closes at high of day at $1.67. The earnings run will start
> now. the shake out is over. BUY & HOLD or you will miss out.
Smart move buying more at $1.63. I'm in it full position.
On Oct 22 01:15 PM protrader101 wrote:
> I sold some other stock to BUY more ETFC. $1.63 buying offers very
> limited downside risk & excellent upside reward. Goldman Sachs
> owns 15M shares or so at higher prices.
Thank you. I bought more at the close and I will buy more on the open tomorrow. The 5 day by hourly chart is bullish now. Watch for ETFC to move back over $1.70 tomorrow.
On Oct 22 04:41 PM smoothinvestor wrote:
>
> Smart move buying more at $1.63. I'm in it full position.
>
> On Oct 22 01:15 PM protrader101 wrote:
Elephant in the room....
bsharvy SO I guess your short? your going to miss out in a HUGE way. Much better plays out there 2 short sell.
Big gains 4 ETFC soon very soon.
On Oct 22 05:38 PM bsharvy wrote:
> Um, hello.... leveraged 50:1 by tangible assets.
>
> Elephant in the room....
On Oct 22 06:48 PM Mobywhite wrote:
> This thread reminds me of the pump and dump small cap threads I used
> to laugh over.
* assumed $375M charge off (mid-quarter report said range was $350M to 375M)
* assumed revenue in Sept is same as avg of July/Aug (there's the same number of trading days in Sept as Aug).
* assumed $11M recoveries (using derived % of recoveries from previous quarterly reports)
* assumed interest expense continues to decrease as ETFC continued to reduce debt levels (via conversion, etc).
* assumed 31% income tax rate
* assumed no one-time charges
* assumed other-expense same as Q2
(in thousands)
total revenue $885,000.00
cost of revenue ($57,525.00)
gross profit $827,475.00
total operating expense ($282,000.00)
interest expense ($158,000.00)
charge offs ($375,000.00)
recoveries $11,000.00
other expense ($8,000.00)
income before tax $15,475.00
income tax expense ($4,797.25)
net income $10,677.75
Customer Service and Operation are suffering. ETFC is running by bean counter to save money as much as they can.
Other the other hands, shareholders are victims. Management has a generous package with little results.
Long: ETFC
All I'm saying is that KG pulls the strings. He gets the cookies. Any cooklies anyone else gets are solely by the grace of KG. Regardless of who may or not be his rumor plant, it all functions to the benefit of KG. That's all. Market forces will only play in when Kenny doesn't want to screw with them.
What would the stock price be if KG didn't step in and flood the market on the hype?
On Oct 22 03:43 PM EJC1645 wrote:
> To Skess11: Are Citigroup, FBR, and Goldman analysts stupid or are
> they part of the conspiracy you talk about ? I'm newly long ETFC
> but I don't want to mess around in any Bernie schemes. Tell us more.
>
> It will be a service to your fellow investors. Thanks.
Still, looking at the regulatory trail, seems that KG has made concessions to stay above 25% in ETFC, and probably needs to stay under 33% to avoid the 'eye' in Washington. He's right there in that sweet spot. Selling has slowed to a crawl, and ETFC is 'over-capitalized'.
KG also has his own problems at HQ, so there are more angles than just a pump-and-dump scheme going on.
On Oct 23 10:48 AM skess11 wrote:
> I'm not saying who is or might be a planted story but some may be.
> We know that happens. What I am saying is that when the debt exchange
> happened I don't think people thought that Citadel would be unwinding
> in an unruly manner just 2 months later. E floated a half billion
> shares and the market absorbed that. Then Citadel dumped hundreds
> of millions of shares.
>
> All I'm saying is that KG pulls the strings. He gets the cookies.
> Any cooklies anyone else gets are solely by the grace of KG. Regardless
> of who may or not be his rumor plant, it all functions to the benefit
> of KG. That's all. Market forces will only play in when Kenny doesn't
> want to screw with them.
>
> What would the stock price be if KG didn't step in and flood the
> market on the hype?
The letter suggests AMTD can dramatically increase long-term shareholder valuethrough a combination with ETFC.
NOTE: This is a rumor until its confirmed it is not!
Maybe next week a Takeover happens?
Long:ETFC
In any case, if for some reason that a buy out offer surfaces, this stock should respond very strongly. I have been long on this trade and started buying it DCA starting at $1.81. My average cost at this point is $1.63 with 145,000 shares. I figure that even if an offer never happens, the earnings report on Tuesday night will very likely post better than expected results, which should act like gasoline on an open fire for Wednesday. I tightened by stops to $1.58 just in case. If the stock price jumps, I will start phasing out of my positions fairly quickly to maintain a smaller % of the portfolio.
I maintain the following: ETFC will beat the expectations, and the stock will rise sharply with very heavy trading. The question will be will it hold an increased value, or be a pop and drop. The jury is still out.
SAN FRANCISCO (MarketWatch) -- Hedge funds SAC Capital and Jana Partners have taken an 8.4% stake in TD Ameritrade and have told the discount broker to pursue a merger with one of its rivals, according to a regulatory filing by the company on Tuesday.
TD Ameritrade /quotes/comstock/15*!amtd (AMTD 19.42, -0.46, -2.31%) said in the filing that industry consolidation is an important consideration of its board and noted that the board has formed a mergers and acquisitions committee that includes three outside, independent directors.
The company also said that it has expressed interest in the past in growth through mergers or acquisitions, but at the right time and if it can find the right "strategic fit."
TD Ameritrade shares jumped almost 10% to $21.87 during after-hours trading on Tuesday.
The discount brokerage business is dominated by Charles Schwab /quotes/comstock/15*!schw (SCHW 17.94, -0.16, -0.88%) , TD Ameritrade and E-Trade Financial /quotes/comstock/15*!etfc (ETFC 1.66, -0.01, -0.60%) . There has already been consolidation, but this year speculation about more deals has resurfaced. TD Ameritrade stock has jumped more than 30% during the past two months, while Schwab shares are up at more than 15% and E-Trade more than 10%.
E-Trade stock gained more than 3% in late trading on Tuesday, while Schwab shares rose 1.4%.
SAC, one of the largest hedge fund firms in the world run by Steven Cohen, and Jana, a big fund with an activist bent managed by Barry Rosenstein, have sought regulatory approval to buy more TD Ameritrade shares worth over $600 million, the company added in the Securities and Exchange Commission filing.
"TD Ameritrade can dramatically increase long-term shareholder value through a combination with E-Trade Financial or Charles Schwab," Cohen and Rosenstein wrote in a letter to the company's top executives and its board of directors.
I still believe AMTD will buy ETFC in the future as do many analysts.
Monday & Tuesday ETFC should see gains ahead of earnings.
This could mean they might not be able to service their debt.
Please be careful
Disclosure = No Position
Here's a rumor about a GS or AXP buyout , maybe you can use it??
On Oct 23 06:41 PM Jeremy Richards wrote:
> Seems my rumor source was talking about old news: www.marketwatch.com/st...
>
>
>
> SAN FRANCISCO (MarketWatch) -- Hedge funds SAC Capital and Jana Partners
> have taken an 8.4% stake in TD Ameritrade and have told the discount
> broker to pursue a merger with one of its rivals, according to a
> regulatory filing by the company on Tuesday.
>
> TD Ameritrade /quotes/comstock/15*!amtd (AMTD 19.42, -0.46, -2.31%)
> said in the filing that industry consolidation is an important consideration
> of its board and noted that the board has formed a mergers and acquisitions
> committee that includes three outside, independent directors.
>
> The company also said that it has expressed interest in the past
> in growth through mergers or acquisitions, but at the right time
> and if it can find the right "strategic fit."
>
> TD Ameritrade shares jumped almost 10% to $21.87 during after-hours
> trading on Tuesday.
>
> The discount brokerage business is dominated by Charles Schwab /quotes/comstock/15*!schw
> (SCHW 17.94, -0.16, -0.88%) , TD Ameritrade and E-Trade Financial
> /quotes/comstock/15*!etfc (ETFC 1.66, -0.01, -0.60%) . There has
> already been consolidation, but this year speculation about more
> deals has resurfaced. TD Ameritrade stock has jumped more than 30%
> during the past two months, while Schwab shares are up at more than
> 15% and E-Trade more than 10%.
>
> E-Trade stock gained more than 3% in late trading on Tuesday, while
> Schwab shares rose 1.4%.
>
> SAC, one of the largest hedge fund firms in the world run by Steven
> Cohen, and Jana, a big fund with an activist bent managed by Barry
> Rosenstein, have sought regulatory approval to buy more TD Ameritrade
> shares worth over $600 million, the company added in the Securities
> and Exchange Commission filing.
>
> "TD Ameritrade can dramatically increase long-term shareholder value
> through a combination with E-Trade Financial or Charles Schwab,"
> Cohen and Rosenstein wrote in a letter to the company's top executives
> and its board of directors.
>
>
> I still believe AMTD will buy ETFC in the future as do many analysts.
>
>
> Monday & Tuesday ETFC should see gains ahead of earnings.
That's 60%!!!!!
Not the sign of confidence or support from ETFC's largest investor.
On Oct 23 11:26 AM Ricard wrote:
> I think you're being unduly harsh. I like your conjecture that the
> stock sales have been precursors to KG's own sales - there's a lot
> of truth in that statement. It explains the ATM sale even though
> ETFC was not in need of the capital.
>
> Still, looking at the regulatory trail, seems that KG has made concessions
> to stay above 25% in ETFC, and probably needs to stay under 33% to
> avoid the 'eye' in Washington. He's right there in that sweet spot.
> Selling has slowed to a crawl, and ETFC is 'over-capitalized'.
>
>
> KG also has his own problems at HQ, so there are more angles than
> just a pump-and-dump scheme going on.
messages.finance.yahoo...
On Oct 24 12:43 PM User 488509 wrote:
> So you got suckered by a 2007 story , shows a keen attention to detail
> on your part.
>
> Here's a rumor about a GS or AXP buyout , maybe you can use it??
>
So, how does he profit? He collects two years of exceptional rates (12.5%), converts this debt dollar-for-dollar into attractively priced convertibles (i.e., loses no money off a slide in credit ratings and possible devaluation on the debt), and profits on the equity sale. That, and the HFT angle. Griffin made a bet that ETFC was within his capabilities to handle, and proved to be right.
What that means is that the key question is whether or not Citadel will hold onto its remaining stake, now that it is compliant with regulator demands (under 33% total ownership). If it does, it speaks to a bullish outlook on the part of Citadel. They *could* take profits now, but instead they choose to hold on for bigger opportunities later. That seems to be what October has translated to. Prior selling is irrelevant given regulatory restraints. You need to re-read the links that several members have posted for your benefit.
Your arguments take too little into consideration. That, and you were previously operating under the assumption that Citadel was taking massive losses on the conversion. If there was no regulatory presence, and if Citadel was taking massive losses to exit, I'd probably agree with you, but neither of your assumptions are true.
On Oct 24 12:50 PM User 488509 wrote:
> Rcard,you're still ignoring Griffin's sale on 9-15 of approx. $850
> in ETFC notes which means his overall holdings in ETFC have shrunk
> from $2.5B in April to under $1B as of last week.
> That's 60%!!!!!
> Not the sign of confidence or support from ETFC's largest investor.
>
You're flat out lying when you say attribute the comment 'Massive losses" to me.My contention is KG wasn't making the big profits on the conversion since everyone is leaving out the notes original cost.You and redbeard deny the cost of converting the debenture at $1.034.
We'll know Tuesday which of us is misreading the terms of exchange and conversion.BTW- if ETFC isn't collecting the $1.034 per debenture conversion , that would almost guarantee a new , dilutive offering very, very soon, maybe at the CC.
Other than that I'll stick with my overall assessment of KG's history and intent fully knowing predicting a hedgie,s moves is a perilous game at best.
"Regarding your thesis that Griffin is standing by ETFC,this is how I see it.
As recently as May, KG owned about $2.2 to $2.4 Billion of 2017's paying 12.5%.
In early summer we saw a small item in a filing that KG had sold $200m in 2017's to parties unknown. He also sold 13m common.
As part of the recapitalization plan,KG exchanged approx. $1.3 Billion in 2017's for debentures.
Then on 9-17-09, a filing reveals KG sold for cash all his remaining 2017's ($750m worth) and another $100m of other interest bearing notes from ETFC.
The latest 13D filed by KG (10-13-09) shows he owns 821m debentures and 166m shares of common, nothing else.
Adding it all up,I figure since the OTS put the screws to Layton and KG after Q1 ,
KG has unloaded approx. 60% of his various shares and paper with ETFC's name on it.
Is Citadel totally abandoning ETFC ?
Dunno.
KG is converting and selling at a "determined " pace.
There's also a general perception that KG is converting at $1.03 and selling above $1.70 to lock in hefty profits. I think that's a bit of an urban legend as nowhere is the cost of the underlying note that was exchanged for the debenture factored in. KG could actually be taking loss on large part of the debentures.
Arguments that he's selling to stay under regulatory limits are bogus , as shares are converted and added to the existing outstanding pool, KG's ownership % is actually going down from a fixed point in time where the OTS declared Citadel in compliance.
Checkler's Dow Jones article hinted at a serious rift between KG and ETFC mgt. but he never gave me any color on it when I asked.
To the best of my knowledge,the sale of the non-convertible notes was totally unforced.
My SUSPICION is he's salvaging what he can and ridding himself of ETFC , these are not the actions of an investor confident the biz is turning around.
The caveat is we know from other articles he'll need to meet redemptions at his hedge funds in January but I doubt ETFC is the "only " asset he can monetize for this ,seems more of a choice.
If KG abandons ETFC, they lose their "protector".
It was his arrival that "saved" the franchise (just ignore the lousy deal terms ).
He was the star who led other institutions to buy the secondary and it was his concessions on the converts that allowed ETFC to reduce their crushing debt burden and satisfy the OTS.
And I SUSPECT they may soon need another protector.
Their most recent ATM capital raise came within hours of them announcing over $400m in receipts from conversions and the final tally of the $600m in the big secondary. David Trone commented that the OTS demanding more reserves at that time didn't appear to be good news-I concur.
I seriously doubt it a coincidence that the share authorization voted on in August included an "extra" 1.1 billion shares.
Another concern is the new holders of the 2017's. Should the OTS demand further debt relief , the current owners of that debt might have less incentive than KG to cooperate."
Then if you look at the last few quarterly income statements, you'll see that revenue is slowly growing and operating expenses are slowly falling. To what extent the Company can continue cutting costs and still provide competitive services is yet to be seen. But since this is a service-oriented company, investing in delivering to the customer is important. If losses continue to fall and eventually turn into earnings, you're still fighting the larger number of shares outstanding as well as the large amount of goodwill in the shareholder equity (as noted above). So this is dicey as an investment. I like the services - use it all the time, just not big on it as an investment.
As for the rest of your analysis, again its hard to have a debate with someone who misses so badly on a rather simple point, and refuses to admit they're wrong when faced with overwhelming information to the contrary. Its like trying to have a debate with a 5 year old. Good luck with whatever position you may or may not end up taking.
You're obviously intelligent and tenacious. Good for you.
Unfortunately, even intelligent and tenacious people make mistakes, and more unfortunate still, getting them to realize they've made one is a perilous and, at times, totally foolhardy exercise.
One more time - the cost of the convertible conversion into equity is baked into the cost of the original spring lien notes (remember, spring lien notes were swapped 1:1 for the convertibles - re-read your PR statement, along with the book and example I cited for you). There is no additional conversion cost.
"We'll know Tuesday which of us is misreading the terms of exchange and conversion."
No, we already know...YOU'LL know by Tuesday, unless you continue to cling to unsubstantiated beliefs.
"BTW- if ETFC isn't collecting the $1.034 per debenture conversion , that would almost guarantee a new , dilutive offering very, very soon, maybe at the CC."
The running theme in our conversation - back this claim up. I do not see how a $1.7bn infusion in additional equity would require even further dilution.
Good day.
On Oct 25 08:51 PM User 488509 wrote:
What would it take for their HELOC portfolio to surprise on the upside?
On Oct 26 12:22 AM Al the pal wrote:
> ETFC is a penny stock fools dream. Lots of hype with horrible financials.
> The company is and has been operating in the red with no end in sight
> because of their huge and horrible HELOC problem. Short this stock
> and any fools rally.
Plain and simple: I believe that ETFC will post a better than expected result, and with the improving economy over time, this will be a solid performing stock again. If it is merged with another firm, that will be great. If not, the HELOC issue will work itself out as time moves on. I could back up my OPINION with all kinds of fancy talking points, but what is the point.
"
"E*TRADE FINANCIAL Announces Debt Exchange Offer and Consent Solicitation
NEW YORK, Jun 22, 2009 (BUSINESS WIRE) --
........
The Company is offering to exchange more than $1 billion of newly-issued zero coupon Convertible Debentures due 2019 (the "Debentures") for all of its 8% Senior Notes due 2011 (the "2011 Notes") and a portion of its 12.5% Springing Lien Notes due 2017 (the "2017 Notes", and together with the 2011 Notes, the "Notes"). The Company is offering to exchange $1,000 principal amount of Debentures for every $1,000 principal amount of the Notes tendered in the Exchange Offer. The Exchange Offer is designed to significantly reduce the Company's debt service burden by eliminating interest costs relating to those debt securities that are exchanged and lengthening the weighted-average maturity of its debt securities. The Debentures will have a maturity of 10 years and will be convertible into shares of common stock at an initial conversion price of $1.0340 per share for Class A Debentures and $1.5510 per share for Class B Debentures, which is 150% of the initial conversion price of the Class A Debentures. The terms of the Class A Debentures and the Class B Debentures will be identical except for the initial conversion price. "
The language seems clear to me.The notes are exchanged 1000 for 1000 of debentures.The debentures are described very much like an option , you pay $1.034 for a share of stock any time you decide to convert in the next ten years.
Some questions for you.
Why call it a "price' if no money will change hands , why not a conversion "ratio"?
If you need to establish a ratio , why not do it with the exchange , i. e., exchange 1034 notes for 1000 debentures?
I always allow for the possibility I may be wrong but this language seems clear to me. We'll see Tuesday.
As to your follow on question about ETFC capital needs.
If they are getting this conversion money as I believe , the chances of an immediate stock sale become small. If you are right , and they are not receiving any conversion capital , I think they'll have to raise capital very quickly. To my mind , the dilution was crippling enough for ETFC , to not be getting the $1.034 for shares would be devastating.And if KG resumes selling on Wednesday , why would you want to buy until he's done?
On Oct 25 10:21 PM redbeard20000 wrote:
> Thanks for not disappointing, you continue to hold by your views
> even when you're clearly wrong. Again, look at the SEC filings and
> notice that Citadel exchanges 1.034 debentures for 1 share of common
> stock. This is the conversion price and you continue to mistake it
> for extra cash Citadel has to pony up.
>
> As for the rest of your analysis, again its hard to have a debate
> with someone who misses so badly on a rather simple point, and refuses
> to admit they're wrong when faced with overwhelming information to
> the contrary. Its like trying to have a debate with a 5 year old.
> Good luck with whatever position you may or may not end up taking.
This is where you are confused
"If you need to establish a ratio , why not do it with the exchange , i. e., exchange 1034 notes for 1000 debentures?"
It because it acts as both a debt security and potential equity. Lets use an example with numbers that are clearer:
Stock ABC is trading at 20$ per share and they decide to issue 1$ Billion in convertible debt. So they issue 1 Billion in face par of notes, with a conversion price of 20$. This means the holder of the bond, can either A.) Collect 1$Billion in cash payment at the end of the period, or B.) exchange their notes for 50 million shares. They would have to trade in 20$ worth of notes to get one share. Notice how this is exactly what Citadel is doing, they are trading in 1.034$ worth of notes to get 1 share.
This is why they need to state a "conversion price", thats the lingo used. The notes can either be exchanged for face value, or converted into stock at a set ratio, the conversion price.
As for whether they
My reasoning for this is, they generate substantial income on a pre-provision basis. Between 200-250 million per quarter (actually 250-300 million post debt for equity swap). Delinquency trends are improving and their total loan portfolio is declining rapidly, over 5% per quarter. They also have 1.2 Billion in loan loss provisions and ~500 mil in cash at the parent level that they could inject into the back. So they already have quite a cushion against future losses. Considering management believes write offs peaked last quarter at 384 million and loan provisions peaked before that, they are rapidly approaching the point where earnings from the brokerage and bank will make up for the losses in the loan portfolio. In fact, the bank is projected to be a net generator of capital this quarter, (they only burned 28 million in capital last quarter). As long as the bank generates excess captial, there shouldn't be a need to raise additional equity.
On Oct 22 04:41 PM smoothinvestor wrote:
>
> Smart move buying more at $1.63. I'm in it full position.
>
> On Oct 22 01:15 PM protrader101 wrote:
"Some questions for you.
Why call it a "price' if no money will change hands , why not a conversion "ratio"?
If you need to establish a ratio , why not do it with the exchange , i. e., exchange 1034 notes for 1000 debentures?"
The conversion ratio is implied. The 'price' allows for investors to more easily determine whether or not the debt can be profitably converted - it would not be as intuitive to say that a $1000 bond has a 1000-to-1 conversion ratio.
To Redbeard:
LOL, I'll buy THAT for a dollar...:)
On Oct 26 12:40 PM redbeard20000 wrote:
> As for whether they need to raise additional capital, I don't believe
> they do. If it turns out they do need to, it will probably be small,
> a few hundred million dollars.
>
> My reasoning for this is, they generate substantial income on a pre-provision
> basis. Between 200-250 million per quarter (actually 250-300 million
> post debt for equity swap). Delinquency trends are improving and
> their total loan portfolio is declining rapidly, over 5% per quarter.
> They also have 1.2 Billion in loan loss provisions and ~500 mil in
> cash at the parent level that they could inject into the back. So
> they already have quite a cushion against future losses. Considering
> management believes write offs peaked last quarter at 384 million
> and loan provisions peaked before that, they are rapidly approaching
> the point where earnings from the brokerage and bank will make up
> for the losses in the loan portfolio. In fact, the bank is projected
> to be a net generator of capital this quarter, (they only burned
> 28 million in capital last quarter). As long as the bank generates
> excess captial, there shouldn't be a need to raise additional equity.
Read this 8-K:
yahoo.brand.edgar-onli...
The 'money paragraph' to settle your concerns:
"The Debentures will (i) have a ten year maturity; (ii) not bear interest; and (iii) be convertible into shares of common stock at any time at the election of the holder into a number of shares equal to the quotient of (x) the principal amount of Debentures of such class to be converted and (y) the conversion price applicable to such Debentures immediately prior to conversion; provided that no holder may convert Debentures to the extent such conversion would result in either (A) such holder beneficially owning in excess of 9.9% of our outstanding common stock (which limitations may be waived by such holder), or (B) such holder owning in excess of 24.9% of our outstanding common stock, under the OTS control rules, which limitations may be amended or waived, as applicable, upon the later of (a) one year notice to the Company and (b) receipt of any necessary regulatory approvals; (iv) contain customary anti-dilution provisions; and (v) will have covenants and events of default substantially similar to those of the 2017 Notes."
Read this paragraph carefully until you get it. It defines the exact process as to how to convert the debt into equity, and at what ratio.
I still recommend you read the book I linked for you. PR announcements are probably the last place I look for any meaningful information on a company.
Principle amount is $1000, you know the conversion price, and OTS has waived the 24.9% requirement.
I think we are all now on the same page.
On Oct 26 10:30 AM User 488509 wrote:
from what I can surmise from the commentary, ETFC like SIRI, is a coin flip on blind faith or a long term (10 year+) hold.
Huge difference in PR language and SEC filing but as you say, mea culpa for not checking both.
What a horrible deal for shareholders in addition to that massive dilution , Layton could have done better.But that's a whole other debate better left for a lawsuit I'd guess.
This leaves ETFC with $1.7 B less capital than I was assuming and to my mind hastens any new secondary. It also adds to KG's incentive to resume converting and selling at the earliest opportunity.
Let's see what they announce today.
On Oct 26 09:37 PM Ricard wrote:
> LOL, I wonder if I'm going to miss all the work I am doing for you...probably
> not.
>
> Read this 8-K:
>
> yahoo.brand.edgar-onli...;type=sect&dcn...
>
>
> The 'money paragraph' to settle your concerns:
>
> "The Debentures will (i) have a ten year maturity; (ii) not bear
> interest; and (iii) be convertible into shares of common stock at
> any time at the election of the holder into a number of shares equal
> to the quotient of (x) the principal amount of Debentures of such
> class to be converted and (y) the conversion price applicable to
> such Debentures immediately prior to conversion; provided that no
> holder may convert Debentures to the extent such conversion would
> result in either (seekingalpha.com/symbol/a) such holder beneficially
> owning in excess of 9.9% of our outstanding common stock (which limitations
> may be waived by such holder), or (seekingalpha.com/symbol/b)
> such holder owning in excess of 24.9% of our outstanding common stock,
> under the OTS control rules, which limitations may be amended or
> waived, as applicable, upon the later of (a) one year notice to the
> Company and (b) receipt of any necessary regulatory approvals; (iv)
> contain customary anti-dilution provisions; and (v) will have covenants
> and events of default substantially similar to those of the 2017
> Notes."
>
> Read this paragraph carefully until you get it. It defines the exact
> process as to how to convert the debt into equity, and at what ratio.
>
>
> I still recommend you read the book I linked for you. PR announcements
> are probably the last place I look for any meaningful information
> on a company.
>
> Principle amount is $1000, you know the conversion price, and OTS
> has waived the 24.9% requirement.
>
> I think we are all now on the same page.
>
> On Oct 26 10:30 AM User 488509 wrote: