Is E*TRADE Insider Buying Simply a PR Move?

E*TRADE (ETFC) directors bought a total of 474,707 shares at a price per share from $3.98 to $4.07 that is worth about $1.9 million dollars according to filings with the Securities and Exchange Commission on Wednesday. Some have argued that the purchases only amount to less than just one of their two Super Bowl advertisements that are expected to cost $2.7 million a piece, but the recent insider buying should not be doubted as a mere public relations effort because there are signs that the worst is behind E*Trade.

The purchases came on the heels of the previous Friday's horrible fourth quarter earnings announcement in which the company reported a loss of reporting a net loss of $1.7 billion, or $3.98 per share, compared to net income of $177 million, or $0.40 per share a year ago. Results for the full year period were equally dreadful with a net loss of $1.4 billion, or $3.40 per share, compared to net income of $629 million, or $1.44 per share compared to the prior year.

E*TRADE is trying to put the credit issues in the past by purging risk off its books as evidenced by its $2.2 billion pre-tax loss on the sale of its asset-backed securities and removing insolvency fears with its effort to secure a $2.5 billion cash infusion and increasing bank capital ratios. Based on the forecast, the company expects those issues which were an overhang on the stock in recent months to disappear. For 2008, the company plans to reduce costs by $360 million, expects to exit the year with excess bank capital of $1 billion, invest in its retail business and even return to profitability.

When you look at some of the excerpts from the conference call (graciously provided by Seeking Alpha), there is definitely a sense that the worst has been seen:

The third quarter was the scene of a disruption to E*TRADE's customer base which resulted in an 8% decline in total assets, which included a 17% decline in customer cash balances. In dollar terms, this translates into $16.5 billion of total assets, including $6.8 billion in cash. Yet despite that, total client assets reached a record $218 billion, representing 16% growth from the beginning of the year.

After the Citadel funding transaction on November 29, E*TRADE was able to stabilize the outflows and began to restore customer confidence. Customer cash balances have remained stable at $33 billion since that time.

During the tumultous time, E*TRADE lost 70,000 accounts, but actually had growth in the quarter in its active trader segment.

Judging by the reaction in the stock price, the market is believing in a turnaround. The stock has seen eight consecutive higher trading sessions and is up 31% since Friday's announcement. The turnaround story has certainly caught the Street's attention, and the purchase of shares is only more likely to increase investor confidence.

Comments

[helplessobserver]

Lets hope the trouble is over as eTrade has the best trading platform for technical oriented traders. They are working hard to improve their Web based platform as well as their premium services.

[danblue]

I have increased my Etrade shares to 28,000 and by months end I will have 50,000 shares. I believe Etrade is $5-$8 under priced. I'm satified that Etrade took the steps necessary to put the financial bumps away in 2007. I do believe Etrade will be taken over by one of three companies Google, Ameritrade, or Citadel by early March. Currently Etrade hasn't denied the rumor that they are considering offers. Etrade is a company that will continue to grow and I also believe the analyst's will begin upgrading due to the finanial facts.

[oldie383]

Why are you afraid to state the real cause of the problem? I am talking about the slanderous downgrade by a particularly pissed competitor. need more clues? just ask! ETFC trade from 3 to 5 has been my best trade this year. Do you trade? do you just "author"?

[danblue]

I agree the real problem that the stock is undervalue is one man that made the slanderous term 15% chance at bankruptcy comment. One could say anything like etrade has 99.9% at hitting $30 by years end. The only difference is mine is true.

[tessant]

pr move or not, i bought at 2.25 and been selling the last few days.

scott w
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