E*Trade Surges on Buyout Rumors

Shares of E*Trade Financial jumped more than 40% Tuesday, fueling speculation that the online brokerage could be a takeover target. The company lost more than half its value Monday, after admitting its subprime losses were greater than previously estimated, causing worries over the possibility of bankruptcy (full story). However, the stock began moving up aggressively around 1:00 P.M., as investors sensed rivals like T.D. Ameritrade, Charles Schwab, and OptionsXpress may put in a bid for a presently inexpensive E*Trade. At least 650 block trades of at least 10,000 shares were bought over the day, indicating that institutional money is also betting on a takeover, according to Bruce Zaro, analyst at Delta Global Advisors. "Our take is that speculation is building that someone's ready to jump in and buy E*Trade," Zaro said. "We don't see the rebound by their shares today as a signal financials have bottomed." Meanwhile, E*Trade and other industry experts spent the day reassuring clients that their money is safe. The company is a member of the Securities Investor Protection Corporation [SIPC], which gives the company's customers up to $500,000 in protection. Clients will not be spared from losses in trading, rather they will be protected if "securities are stolen by a broker or put at risk when a brokerage fails for other reasons," E*Trade explained on its website. The company added it has insurance policies totaling about $660 million, which could be given to clients under certain circumstances. E*Trade finished Tuesday's session up 40.9% to $5.00.

Sources: MarketWatch I, MarketWatch II
Commentary: E*Trade Financial Drops, Presents Buying Opportunity • Wave of Buying at Schwab and Ameritrade after E*Trade Meltdown • E*Trade: A Bargain At These Levels?
Stocks to watch: ETFC, AMTD, SCHW, OXPS. ETFs: FDN, HHH
Earnings call transcript: E*TRADE Financial Q3 2007

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