E*Trade's Dilemma: It's Not Just Subprime

Comments from E-Trade President Jarrett Lilien in a pre-conference call interview with MarketWatch’s Murray Coleman about the company’s mortgage mess pretty much say in a single sentence all you really need to know about this country’s credit crunch: “Our issue is that the value of high-quality loans is underperforming.” High quality loans.

I live in a fairly upscale part of suburban tractville in San Diego. Lots of homes built in the past year or two or three nearby. This weekend was the first time I’ve seen a sign on the main drag pointing to an open house and “foreclosure auction” in an area where homes are probably in the $1 million range. This ain’t where you’re supposed to see foreclosures.

Also, for what it’s worth — and admittedly very anecdotal — lots more realtor open house signs on the weekend than there were in the peak spring selling season.

The beat goes on…

Comments

[Frank Li:]

Their hubris is amazing. Look at this question asked on the call (I took this from the transcript on this site seekingalpha.com/artic... ):

Howard Chen - Credit Suisse

First question, I guess is a bigger one. It’s been a month since you announced that strategic realignment. You as the management team have had time to assess the situation, to discuss the numbers and see your shareholders and incremental owners. Realizing that he changing environment, I am just curious what lessons do you and the management team take away from the past few months? What in management’s control doesn’t happen again going forward?

Mitchell Caplan

I think we have come away with a couple realizations, most of which I think -- I hope, I believe very strongly -- that I knew going into it. One, and that is the customer is at the center and the most important at everything we do. As we think about the decisions we make in running our business, it is all about continuing to ensure for that customer both a great value proposition, with respect to product and services and also making it clear to that customer what a solid, stable and growing franchise we have by discussing things like excess liquidity. I think it’s up to now $14.4 billion from the FHLB has actually increased; continuing to deleverage the balance sheet, strengthening our capital ratios and obviously the sources that are available for us for additional capital. So, I think that is the first thing we learned.

The second thing that we learned in the process is it is absolutely imperative to have a phenomenal management team. I will tell you I think I am incredibly blessed. The team has been extraordinary in working together in what has been a very, very difficult time. Without a doubt on the retail side, the whole team stayed focused and delivered results that I think are incredibly impressive, summer or otherwise. With respect to looking at what’s happening in the marketplace from the instability and the fluidity and the challenging environment, we are dealing with exactly the same thing that everybody else is dealing with. So at the result of that it’s all about having a strong team that can evaluate and make decisions that are appropriate, I think promptly and then execute as quickly as possible.

2007 Oct 18 02:14 PM