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Marketwatch and Dow Jones Newswire point out today the stark contrast between E-Trade’s (ETFC) first-quarter loss and profits at Charles Schwab (SCHW) and Ameritrade (AMTD). So why did E-Trade’s shares jump a total of 20.7% by the end of after hours trading on April 17, 2008? The details in E-Trade’s conference call earlier that afternoon presented a successful “Turn Around Program.” A “Turn Around” from what?
The date was Monday, November 12, 2007. That was the day Prashant Bhatia, a Citigroup Analyst, released an analysis report on E-Trade with the headline, “Bankruptcy risk cannot be ruled out.” The inflammatory title of Mr. Bhatia’s report spawned several nationally televised [CNBC] and written [Marketwatch, Wall Street Journal] commentaries, each repeating the “B” word without sufficient disclosure of facts. The national exposure fueled Mr. Bhatia’s report into an inferno of disaster for E-Trade.
E-Trade’s stock price declined more than 59% from the previous trading day to a low of $3.46 per share; much lower than Mr. Bhatia’s $7.50 target price. Brokerage clients fled from E*Trade to other brokerages as Mr. Bhatia’s words, “If customers rush to withdraw their money,” became a reality. In the months that followed E-Trade’s stock price has been as low as $2.08 on January 8, 2008 and achieved a high point of only $6.04 on November 29, 2007. Yesterday, April 17, 2008, E-Trade’s stock price closed at $3.62, only 16 cents higher than the November 12, 2007 price. So it is not surprising that a E-Trade’s call presenting their successes in the “Turn Around Program” should result in a 20.7% share price increase.
Successful client and trading metrics reveal “growth in new customer relationships, even during a difficult environment, [and demonstrate] the continued strength and appeal of the E*TRADE brand.” (quoted from Donald H. Layton, Chairman and CEO, E-Trade Financial Corporation). E-Trade’s survival is no longer in question, even though mortgage exposure continues to weigh on the company. The damage from November 12, 2007 is now showing a turn around through E-Trade’s “creativity,” “frugality,” and “stability.”
Creativity—The S&P lowered their opinion on shares of TD Ameritrade (AMTD) to Hold from Buy on March 28. Why? The S&P stated in part that they “see [AMTD] margins being pressure by the high level of advertising spending and by increased customer incentives from primary competitor E-Trade.” E-Trade is competing aggressively through customer mail solicitations, platform trading upgrades, customer incentives (for example, Free ATM Services), and advertisements. The most famous E-Trade advertisement is their Superbowl 2008 Baby Ad. USA Today and TiVo ranked the E-Trade Baby Ad Number One and pointed out that even though celebrity appearances in Super Bowl advertisements included Justin Timberlake, Shaquille O’Neal, and Carmen Electra, “yet, for all the star power they generated, the E-Trade talking baby may have upstaged them all, taking the coveted top spot.” (see it on youtube.com)
Frugality—Reuters recently released news that E-Trade “sold its corporate jets.” Yesterday’s financial report discloses that this frugal action provided a “$24 million gain on the sale of corporate aviation-related assets.” Also, E-Trade CEO Donald H. Layton has “requested that all of his 2008 and 2009 incentive compensation be in the form of equity. His employment agreement states that in those years nearly 90 percent of his total compensation will be composed of restricted stock and stock options, with no cash bonus. This conservative spending and top-level stock incentive program will positively affect stock value.
Stability—In November E-Trade negotiated a $2.5 billion cash infusion from Citadel and added additional private insurance coverage for customer deposits; activities that stabilized the balance sheet and enhanced customer security. E-Trade continues to move forward with actions that will reduce mortgage portfolio risk and increase capital and reserves. Since the 1990s E-Trade built up a loyal online trading clientele, developed an innovative trading platform, and established a reputation as one of the most secure (hacker safe) online brokerages. E-Trade’s involvement in the “subprime mortgage crisis,” as with all mortgage lenders; will require a period of watchfulness and adjustment. Yesterday’s financial report shows that the problem has stabilized and is being properly managed.
E-Trade CEO Donald H. Layton stated,
Our expectation is that we will return to quarterly profitability later this year. As you all know the company has twin priorities right now; to return the core business to full competitive growth and to strengthen our balance sheet. I am happy to report that the first quarter was strong on both fronts.
I have used E-Trade for online trading for over three years. I did not flee to another brokerage firm when Mr. Bhatia caused such panic back in November. Since my money is held in E-Trade accounts, I considered moving it somewhere else, so during that process I read many articles and blog comments regarding E-Trade. I have not moved because the comments I have read say that E-Trade has a superior trading platform and superior US andglobal product offering. As E-Trade’s “Turn Around” is established, many previous customers will return to so that they can have the advantage of the superior trading platform.
I think that E-Trade’s price will move quickly up to at least $5 to $6 per share like it was back in February 2008. No reason exists for it to stay in at such a “depressed” $4 value.
Disclosure: I hold a long position in ETFC and STX.
This article has 59 comments:
"E-Trade’s survival is no longer in question..."
Although they will work through the mortgage issues in time as you point out, they have a 12.4% cap ratio, as good as JP Morgan and better than Wells Fargo. And this will continue to get better as time goes on. Indeed, I would venture to guess by the next quarter you will not find another bank with a better cap ratio than Etrade, they are as solid as a rock.
"No reason exists for it to stay in at such a “depressed” $4 value."
This cannot be stated enough. And this was true before the conference call. Regardless, they will return to profitable quarters later this year, I believe 2Q, 3Q at the latest. The stock was comfortably in the $20s when they were earning 36 cents per share. Once these loan provisions are set aside, and the interest income goes directly back to EPS, the earnings may not equal 36 cents but I would imagine they will be near the 20s.
Absolutely no reason exists for them to be in the $4s. Or the $6s for that matter. Another quarter and they should be in the $8s, that's where the "Bhatia gap" exists.
Thank you for your time and effort in penning your article. Full disclosure - I too am an ETFC long.
Kudos to you for this article.
- We've "turned the corner." The HELOC and loans are now dramatically decreasing in delinquincy rates. This was one of the core targets for shorts/bears on ETFC.
- The BOD repeatedly stated that there would be only "Shareholder Friendly" measures taken to raise capital, and the company felt that it was more than covered via means such as non-core asset sales and cost-cutting measures. This, too, puts to bed the rumor of a Capital Markets transaction that dilutes shareholder value! This can't be over-stated since it was one of the core arguments against ETFC for the past 3 months.
- Restated "profitable in 2008" -- again, goes against the grain for what most analysts have been saying. The turn-around plan is working, and it sounds to me that ETFC will raise more than enough capital to cover losses, especially with a deeply slowing trend of delinquincies, and get the company back to making money very soon. I wouldn't be surprised to see a profit in Q2.
Layton and the BOD did a superior job during the CC -- congratulations should be in order to them! They were pressured from many angles with questions from the analysts about dilutive measures -- the answers were consistent each time that the company is getting healthy quick and there's no need for capital outside of the measures being taken in a Shareholder Friendly fashion!!
I agree with you, Cindy, that $5 and $6 should be a given at this point. The company's book value and cash alone would dictate it. But I wouldn't be surprised to see investors rushing back to ETFC now and driving it much higher... where it belongs!
I am still analyzing E*Trades results, but my first read is very positive. If one backs out the large non-recurring charges, and other positive, negative one time hits - I come up with ETFC earnings over .19 a share this Q. And remember that DART's were up 12% from last years Q, were they earned .39 - so normalized earnings will be back over .40 per Q, once ETFC unwinds its foolish position of being a mortgage reit. This will take a few years, but the market will see these trends and ramp the stock price up. I fully agree the price now should be higher than the BK scare of last November.
Bill
Is that you Prashant?
Brown
I too am long ETFC.
Let's speak in facts here, please. "Planning on a dilutive share offering to raise money?" Please share your facts and back them with references. That's exactly contradictory to what Layton and the BOD said on the CC. He said there would be NO NEED for a dilutive capital raise, and that the company saw more than enough money to be raised from non-core asset sales and cost-cutting measures. This was repeated 3 or more times during the call for the thick-headed analysts who insisted on rephrasing the question multiple times.
As for focusing on the good or bad, read the articles in the last 6 months. Since Bhatia made his extremely irresponsible remarks back in November, ETFC has sunk -- HARD. As Cindy points out here, and the same was recently stated in the Fortune article about the day "$2B walked out the door", ETFC has been HAMMERED by the press with one negative article after another. CNBC and many others have taken every opportunity to bash E*Trade with little more than speculative fear-mongering. So you're complaining that there's finally some reality here and Cindy, like a few other brave writers, are offering up the GOOD points on the company?
The public argument has been overwhelmingly AGAINST E*Trade for 6 months now. It's time to see the tides turn. Citibank is shown to have increased their position 606% in ETFC during Q4 while their analyst was throwing around irresponsible quantitative figures (15% chance of bankruptcy) with nothing to back it. Does that sound honest to you? It's about time these analysts and media agents with an agenda are held to some standard of responsibility for their words.
E*Trade will prosper, and the same "followers" that have been part of the lynch-mob for the last 6 months will be late to the party in singing its praises. They have no integrity and little insight to offer. Those who have spent the time to crunch the numbers, analyze the company's position, and honestly even USE their products/platform, are much more "in the know" than most of the two-bit reporting I've seen providing "coverage" of ETFC as of late.
The joke is on them, honestly, as it will be way too late to purchase shares at $4 once the general "heard" has come to a positive consensus on the company! :)
As a person who has used 3 different on-line brokerages, there is little doubt that E-Trade has a superior platform. Furthrmore, if they can keep the brokerage and the bank integrated (less the mortgage business !!) they have a remarkable competitive advantage for a company of this size.
Is it possible that the company management who say they don't plan on a dilutive raising of capitol could be underestimating the carnage ahead in the residential real estate markets. The tide is going out ahead of the tidal wave of mortgage & HELOC defaults and nobody seems to be running for cover. Anyway you slice it, this company is highly leveraged and if a significant portion of their assets is tied to residential assets that have a long way to go before a bottom is reached, the company will need to raise more cash somehow, somewhere.
Thats why the stock is at $4. Not because its been unfairly treated by the media or by a few crooked analyst. Supply and demand. Besides a very loyal following of people, like those represented here, there are a ton of people who don't want to get tied up in a company that "may" have further issues. They did lose $91 million with a big EPS disappointment.
Luckily this market has been shrugging off all bad news, thinking the bottom is in, but everyone here knows that this earnings report just a month ago would have cut this stock in half, again. I've been looking for an opportunity to pick some shares up because if the bottom is in, and they do return to profitability soon, than you guys are right, this stock will take off. This report was not exactly the good news I was looking for to get off the sidelines and pick up some shares.
If they said they had jettisoned their mortgage business instead of implying that it would turn around, I would of found much more reason to buy this thing.
All of you have missed the true weight of ETRADE's balance sheet (and please realize that I haven't looked at the specifics yet), and that is the cost of that cash infusion at a rate of 12% (or thereabouts).
I could really care less what other people say, I am sticking with my Etrade, and have made a good chunk on ETFC this year on my quick few day trades. I keep a few shares on hand for posterity sake so if the share price jumps a buck or two while I am off on vacation, I can honestly say that I did not miss out.
WEZ, I hate to break it to you , but the fear mongering and the naysayers have run out their course. It is all very transparent now, and most people are preying on all their carnage.
I hope all you shorters get nailed . . . .
I've done my DD, and probably spent more time than a lot of analysts who cover ET and I'm in and already green.
See ya at $15.
Is it possible that management has understated their exposure and possible further write downs?
Lets fast forward 3 months, this stock is at 5, 6, 7, 8, you pick the price...and they come out with another announcement like the one today? Will the market be as forgiving as it was today? I invest in companies, I don't trade stocks. When I can say, with confidence, that in 3 months this company will be fine thats when I like to invest. I suspect that type of sentiment is why this stock is at $4.
As a shareholder, I feel like their PR could have been better, but I also firmly believe they have shareholders interest at heart. I get that impression because of the actions they've taken as well as the statement's they've made in the past and during this CC.
Layton has said, he's impressed with the loyalty of the shareholders as well as the customers to ETrade, and to show that his heart is in the right place is taking stock as compensation. I really don't think he's going to betray that loyalty. He came out of retirement and accepted the CEO position to turn a company around and end his career on a good note, not to burn shareholders.
These are not the actions and sentiments of an Enron-like board of directors, so when they say the HELOC's are performing as expected, I believe them. I also believe them when they say they will not raise capital in a non-shareholder friendly sort of way, or dilutive to the share value.
My expectation 3 months from now is along the guidance that they have given. More gains in strengthening their balance sheet, and growing their core business. I do agree that if the announcement was like the one today that the market won't be as forgiving, because it would mean that they have not progressed in the turnaround. But this CC has shown a lot of progression, and I don't see a reason to believe that it won't continue. One thing about this board, is that their projections and reserves are very conservative. They will have excess capital at the end of the year because of it. That's why the stock price will rise accordingly.
I'm sure your investment strategy has served you well. I'm a bit riskier and if I see an oversold stock with great potential, I'll jump on it. I would also wager my portfolio is probably more volatile than yours, but when I'm up, it's huge.
I too believe the moat of etrade is still unbreakable and should definetly help the stock contiue to rise. Just look at the book value
"Although the performance of our one- to four-family portfolio is somewhat outside of our anticipated range, the expected losses in dollar terms are comparatively low given our position in the underlying collateral."
Does that mean they think the property values are stillhigh enough to abosrob most of the losses from defaults in this group/
Reason
The stock market goes in cycles. After a point screaming wolf doesn't scare people anymore. Are there surprises ahead? Sure, when haven't there been? If investing was easy, everybody would be filthy rich.
Picking bottoms or tops is a fool's errand. Taking ANYTHING said by some analyst, market watcher, so-called professional or talking head on TV is in my opinion is about as useful as used toilet paper.
Many playing the market have a heard mentality. Sure, you can hitch your wagon to some guy's idea and keep your fingers crossed it pays off but nothing beats doing your own homework.
Specifically regarding E-Trade I think it is obvious management knows they goofed. The new guy is trying to turn the ship around and focus on what they do best. He seems to be off to a good start. I for one am willing to give them time. How much depends on market conditions and how well they do.
As a long time investor in the stock market I DON'T PANIC. Sure, over the years I've made some really boneheaded decisions, but you know what, I made some pretty good ones too. Most of the time the right decision was doing what the others ain't.
That's why I'm still long E-Trade, NCC, and yep even Thornburg. Many ran away kicking and screaming from the last two. I increased my position. But what the heck do I know.
You can't complain that you're getting your head chewed off for simply suggesting people post the negatives along with the positives. Do a google search on every article written about ETFC for the last 6 months and you'll get your negative point of view. Have you criticized them for only posting the negative? It's time for a different point of view, and just because it's a healthy/happy one doesn't mean it's full of fluff, made of candy, and painted rosy for no reason.
The people posting here are some of the most "seasoned" investors (at least some of them I know from the Yahoo Finance board) in ETFC around. They've lived and died by doing their homework on this stock. I'd count myself in with them as I have a sizeable chunk of money riding on this company.
You should expect to be flamed if you request MORE negative opinions on a stock that's been already HAMMERED to death for half a year with negativity. You should expect to be flamed if you ask questions about where the money is going to come from and suggest dilution -- you obviously didn't listen to the CC or do your homework yet. The BOD answered this question in the most obvious and clear fashion possible -- non-core asset sales and cost-cutting. They clarified this 3 times or more during the call. If you HAVE listened to the call and are still asking that question, then you're simply implying that they're either lying or don't have their heads on straight. Feel free to that opinion, but it's a 6-month old opinion that keeps get proved more wrong each day. Don't get upset that no one here wants to discuss it any longer -- it's been beaten to DEATH on the forums for ETFC and the emperical evidence is strongly suggesting otherwise (reference Q1 results).
Don't complain about getting flamed for suggesting the the HELOCs and HE loans are worse than expected. The BOD addressed this during the call, too. Delinquincies on such loans dropped over 40 percent since last Q. The BOD said that this was by no means a trend but a very positive sign, although they're still continuing to build a cushion at the same rate to protect against write-offs. No one is claiming the worst is over, but the good signs DESERVE acknowledgement after the last 6 grueling months.
Do you honestly believe the EPS was the center stage for the quarter?? If so, you should pack up your money and take it to a mutual fund because you're in the wrong place and individual stock investing isn't for you. A 10 cent difference in loss was trivial. ETFC could have BEAT earnings (let's say by selling off even more assets) and went down the toilet if the rest of the CC didn't prove that the turn-around plan was working and the future was bright. The EPS was, by derived admission of the analysts, a crap-shoot at best since they had little idea how the HELOC/HE loans would be performing in 3 months when they made those predictions... or what assets would be sold at what price in this market, etc. So, again, don't be surprised if you get flamed for saying how the EPS was a "big disappointment."
If you're serious about investing in ETFC, I would recommend you start digging deeper -- much deeper. It's not a sure bet, but my personal opinion after doing much homework is that it's a GOOD bet. You can't judge that by looking at the share price alone, and any seasoned value investor would tell you the same -- after all, if everyone recognized a good thing, the share price would be high and you wouldn't have a value, now would you?
Etrade
Customer
Hawthorne
Sure E-Trade "tanked" on November 12, 2007;from a close of $8.59 on November 11 to $3.55
Serious? of course it was, but let's see now... The stock peaked on June 6, 2007 at $26.60 close, and then spent the next 5 months steadily traveling south as earnings and sales growth deteriorated.
This was well before the sensational Bhatia article, which put the final nail in the coffin... But let's not shoot the messenger!
Before encouraging folks to charge into this stock (which might very well be turning around), perhaps Cindy could expend as much energy examining how ETFC got to be where it was on November 11 as she does mourning the events of November 12th!
Turn around from what??? No, NOT November 12, 2007!!! Lets see a turnaround from the conditions that prompted the fall from June 6, 2007!
In June '07, E-Trade's earnings had been as flat as its priceline for about a year, even as its sales and revenues were already gradually declining...
The eggs were already broken way before Bhatia made the omlet!
Today, ETFC just might be turning around, but the path ahead will be a very, very steep one, and E-Trade will have to pull off a miracle in sales growth in a tough and badly damaged market just to survive.
It has been sitting there like a ruptured duck and one would think it just might be an attractive buy-out candidate after dropping some 85% in nine months!
E-trade looks more like a recurring "pop-and-drop&quo... candidate that will move on hype and profit-taking until we see some solid company growth! But, maybe I'm missing something...
Good comments. I agree that ETFC didn't break because of November 12th -- it was broken well before.
However, what we DO need to agree upon (and this is examined closely in the recent Fortune article "The Day $2B Walked Out the Door", I believe) is that Bhatia's comments were irresponsible and dramatic. He claimed that the company had a 15% chance of bankruptcy, and to this day there hasn't ever been a decent backing of that quantitative figure with calculations showing any truth or responsibility in that statement.
In fact, if you read the Fortune article, Lillien is interviewed there and speaks of his surprise about the statements. In his words, the company was seeing deteriorating effects of the mortgages, but it wasn't nearly what Bhatia was portraying. $2B in cash was pulled from E*Trade bank the morning of Monday the 12th. The following days the pulls got bigger and bigger as Bhatia's article created a self-fulfilling prophecy. While Lillien admits the loans were in no great shape, they were hardly to the point of creating a liquidity problem in the bank.
However, after Bhatia's scare, within only a few weeks $30B+ in cash was pulled from the bank on fear. What do you think happens at that point? Surprise! There's a liquidity problem, and ETFC is forced to seek out a deal from Citadel for pennies on the dollar for subprime loans. ETFC could have handled the write-offs as they came rolling in on those subprimes, and you can rest assured that the losses weren't going to be 60% of the portfolio or more -- equal to what ETFC needed to give up in order to keep liquidity going after the run on the bank.
So, you're proposing it was a chicken-and-the-egg scenario, but it wasn't. By Lilliens admission and by analysis of the balance sheet prior, there was a problem. But the problem was in no way the size and scope of what was created after Bhatia screamed Bankruptcy with nothing to back it. Recalculate the losses for Q4 without the equity swap with Citadel and factor in the bank not lossing $30B+ in customer assets... it'll tell a very different story. Most of the Q4 ($3.98/share) loss came from the deal with Citadel, which was ONLY required after the bank started lossing money FAST from Bhatia's run.
Meanwhile, back at Citigroup, they were preparing for the first of multi-billion dollar losses and the need for an outside investor to step in and secure more capital. Citigroup wrote off $10B only to be followed this quarter by another $5B. Likewise, as their analyst was screaming FIRE in ETFC's theater, Citigroup increased their holdings of ETFC stock some 606%! Now, I don't have on my tinfoil hat here, but this sounds a bit fishy to me. Citigroup not taking their OWN analyst's advice?? If ETFC was TRULY going BK and had such dire problems as described by Bhatia, why would the troubled Citigroup invest in ETFC? No less, why would they increase their position over 600%?!?! Hmm. Is there a SLIGHT chance, perhaps, that they didn't agree with Bhatia's statements and they knew that ETFC's big stock price collapse from $8.59 to $3.55 in one day was unfounded? Sure sounds like it. But again, no tinfoil hat here.
So, yes there is a turn-around under way here, and it's a turn-around from PRIOR to November 12th. But, unfortunately, most of the damage control and emergency measures taken are directly a symptom of November 12, 2007. $30B+ in a few weeks time is a lot of money to lose!
The HELOCs and HE loans are performing okay. Delinquincies are down 40%+ over last quarter. Their cushion is building up for loss reserves. The clients are stabalizing and seeing growth again -- in net accounts and assets. So, there's no other way to characterize that -- if you graphed it out, it would be showing a clear turn of direction... a TURNAROUND!
They clearly have some issues left to deal with, but the media has had a field-day with this company over the past 6 months. It's quite an unfortunate event for our whole country, actually. It's clear to me that there are very few "thinkers" and many followers in the news/media. There were leaches all over the ETFC demise stories -- writers, reporters, "analysts" with no facts, incorrect facts, and sometimes purely sensationalized BS... all so they can have a headline "disaster" story to tell while everyone is caught up in the "subprime crisis!" "Ooooo... spooky!! SCARY!!" Please. Yes, there is a problem, but it's embarassing how few agencies and analysts do their job at being agnostic, objective, and responsible in reporting on the FACTS. "15% chance of bankruptcy" was a sensationalized piece of drama befitting of Hollywood not Wall Street.
rver
Hawthorne
Excellent account of the fallout from what we agree was an irresponsible piece of trash on Bhatia's part!
Yes, I've read the 'Furtune' article, but was left with more questions than answers, such as how on earth a Wall Street veteran like E-Trade CEO Layton could make the statements like, "I was not aware of how rumors in a vacuum could move fast and move the stock so much."
I was stunned to read this, and was flabbergasted that he would refer to the environment of 11/11/07 as a "vacuum".
Let's not forget that the Friday before Bhatia made his stab, the news on E-Trade included news of an SEC investigation, further mortgage-related losses and the withdrawal of earnings guidance, &etc. E-Trade, through a string of poor management decisions and horrid risk-management had cultivated a very fertile patch of ground for his seeds to land on.
Let's also note that more reasoned analysis from Bloomberg, Forbes, the WSJ and others instantly appeared, and yet failed to change the trend. See below...
blogs.wsj.com/deals/20.../
www.bloggingstocks.com.../
www.forbes.com/2007/11...
www.bloomberg.com/apps...
However, I do agree with you that the events of 11/12/07 were devastating to E-Trade, and I do hope that this company can truly turn things around. Until they and others in the Financials do so, there will be hope for a broader long-term recovery....
Your points are all valid. I agree with you about the "vacuum" comments in the Fortune article. I, too, was stunned that these guys would be surprised by the power of the right rumors/news combined with a ripe climate.
I think we can agree that the previous BOD leaders had some major shortcomings. I can't hold them free of accountability either, and I agree that they certainly laid the land for Bhatia to harvest. It's important to combine the results of Bhatia's statements with the previous conditions you described to get the full picture. He's certainly not fully to blame for 11/12, but perhaps (more fairly) acted as a major catalyst for the down-turn.
In any case, I don't want to cry over spilled milk. In reality this has created a great buying opportunity for a good company at an undervalued price -- just my opinion, and with assumptions that the turn-around continues as planned. Thanks for the insightful posts, Jim -- good links showing views outside of Bhatia around the same time. Here's to hoping for the best!!
Thanks for a stimulating some of the best discussions on E*Trade from investors and customers who have demonstrated that they know a lot more about this business than the Prashant clown whose credibility is now forever shattered.
How about posting in the WSJ ( or on Seeking Alpha) an article postulating that Prachant now runs at least 15% probability of being fired ? Wouldn't be fun to watch that irresponsible sycophant scramble to save his job as he wil for sure blame the people behind the article for baseless reporting .( is anybody at Citibank, especially his superiors, looking to eliminate non-essential jobs listening ??).
in addition, my credit is excellent and just over a year ago, i was shopping for a $300+ mortgage. although i was a good customer with a net worth that easily covered the mortgage, i still had many forms to complete and much evidence to provide. despite good cutomer service, i was unable to get my lowest rate from etrade. i was able to beat them twice locally. this suggests to me that their mortgage department was not as aggressive as others and they were extremely cautious lenders.
disclosure: i do not own stock in etrade.
Thanks for the real-life testimonial. Yes, ETFC has said many times that their customers FICO scores are some of the best, much over 700. I'm not an expert on their lending practices, but your story seems in line with many others. Outside of their sub-prime loans (now all gone!), their core lending practices will prove to be a saving grace here. An analyst (can't recall which firm) on this quarters CC stated that ETFC had a trend unlike the other banks they're seeing at the moment and likely due to the quality of the customer requirements for their loan portfolio.
Reason
Reason
I'm listening.
nice exchange . . .
I agree with both of you. I also enjoy reading all of these posts. ETFC seems to be in the "limelight" due to events in November, sadly, far before all of the others and to a greater degree as well. I think many other institutions were relying on a scapegoat to bolster share holder confidence. Oh well, they only bought maneuvering room. I still think ETFC will come out shining like a rose, and I am still long, and I still buy and sell ETFC when the picking is ripe. Their 1Q weren't as bad as they could have been, and it paid off for me.
I am sticking with Etrade . . . it serves my purpose, and I think as a platform it serves the purpose of their entire target market. Think about it, I bet there are a hell of a lot more F-150's driving around than there are 911's. There may be better platforms for some out there, but I don't think there are better platforms for the masses out there. I do wish they would add a trailing stop limit order to their array though. The code can't be that difficult.
Oh well, back to my studies . . .
cheers!
I wasn't complaining about being flamed, I was laughing at it. I'll make the argument that listening and believing what is said on company conf. calls is probably one of the biggest mistakes an investor can make. Do you really think a company's management would give anything other than a fully massaged and scrubbed depiction of what is happening? You claim to be a seasoned investor yet choose to list what a company says about itself as some sort of evidence of a turnaround? Have you ever heard positive comments on conf. calls and than seen a company unravel shortly after? How many stocks can we put onto a list that fit this scenario?
One of the mistakes I've made in the past when buying stocks is choosing to listen to one school of thought when I think it supports my case for owning a company. I to have thought that ETFC was possibly unfairly taken down and may represent a decent turnaround play. Than I started to think about all the competition in their space that isn't having the same problems. Than I started to remind myself that while a beat up stock may look good from a value point of view, often times where there is smoke there is found fire. With so many other companies flourishing in this market (i.e. GOOG, etc), do I really need to invest in a company where there is still a question with their long term viability.
You don't need to tell me to put my money in a mutual fund instead of owning individual stocks because I disagree with your few of EPS reporting. You choosing to believe that their 10c miss is meaningless, doesn't mean it is meaningless. I have plenty of money in mutual funds. I enjoy putting a portion of my investment dollars into individual stocks and the last thing I'm going to do with that money is listen to a bunch of anonymous internet posters sway what I feel has been a successful approach to investing.
Reason
I see way more excessively negative crepe hangers. For those not that familar with that term it refers to compulsive worriers, anxious about things that have not yet happened and persons with a consistently pessimistic outlook. As an investor I have a positive outlook and the long term record of the markets bears me out. So no, I'm not overly fond of people who always seem to see the glass as half empty and also seem to look for opportunties to throw away what's already in the glass then get bend out of shape if everyone else doesn't do the same.
So, you're claim is that the ETFC management is boldly lying to your face and all of the analysts? Okay, that's fair. YES, I have seen management do this before. However, one this is dramatically different here than where I've seen that done before and pulled off -- this isn't a speculative company who is claiming to have a "mind blowing" product ready "any day now." These situations are usually the ones where the bottom falls out on all of the spec investors.
ETFC isn't a speculative company. They have real products, PROVEN products, considered "best of breed" in the industry. They've fallen on hard times, and those hard times can be easily quantified and measured. So, while you don't have to believe QUALITATIVE statements by management, you have no choice but to beleive the actual results -- $3.98/share loss in Q4 to $0.20/share loss in Q1 tells me that, yes, things ARE turning around.
You can look at the delinquincy rates, look at the credit scores, measure the DARTs, etc. These are all metrics -- they're not "taking the word of management" by any means. If you crunch the numbers, you come up with a VERY compelling reason to believe ETFC is heavily under-valued and heading for a strong turn-around. I'm simply using management's statements (their own words) to describe what the hard facts, the MATH, shows us.
So you started to think about the competition and other companies that aren't "hurting" and thought they'd be better buys?? Hmm.. interesting tactics you have there. Ever hear of a man named Warren? Well, this fella made quite a bit of money buying the "beaten but not broken" companies with high quality reputations and great products. It's a formula that has stood the test of time and made the guy a billionaire. Now, while it's not going to work all the time, if you look at the tell tale indicators of where it HAS worked and you compare those to ETFC, you get quite a few "hits." I'm not going to do your DD for you, but mine shows a fairly compelling value investment opportunity here that SCHW, AMTD, and even GOOG are probably not going to give you in 12 - 24 months.
Finally, my statement about the 10c difference on earnings isn't only my opinion -- did you listen to the CC? Did you hear ONE single analyst comment or ask a question about the quarter's earnings as compared to "prediction"... NO! Everyone new there would be a loss, but when you're coming from a multi-BILLION dollar loss the quarter before down to a loss under 100M, that's a substantial improvement. It's like throwing a dart at a dart-board in the dark. No one cares that it wasn't bullseye - they were concerned that it even hit the board! The real future for this stock is whether they become profitable again -- which looks to be coming soon. That's what the analysts wanted to hear. Notice how all of their questions were focused around dilutive capital market transactions, profitability for the future, etc.
I'm getting sick of the topic actually. I wish everyone here good luck on the recovery, I'll sit this one out. Way to many companies out there with huge revenue and profit increases to F with some question mark.
Reason
As far as you getting sick of the topic, several posters handed you your head on a platter. So good idea, time you stop embarrassing yourself.
I'll admit, I don't know much about thinkorswim. I can't say I get their name much, though -- sink or swim usually implies failing or succeeding, but I consider thinking AND swimmig both to be one in the same. Maybe I'm really hard-headed at 6am here, so I could be missing something!
Anyway, I don't doubt that someone will eventually create a better widget. That's the game, isn't it? The software, like all other software in the enterprise market, eventually becomes commodity. So, I don't think we can simply judge a company on how well their software works. You can constantly keep one-uping each other on this -- you see car manufacturers doing this every year. But the real value is in the rest of the company image, their reputation, their customer service, their availability, scalability, customer satisfaction rates, marketing, etc.
So, if you want to compare the two, you really need to do a complete analysis. Like I said, I'm the first to admit I don't know anything about thinkorswim -- and I'm sure MOST people don't since it's not a household name. But perhaps they'll be an acquisition target for one of the three big OLBs (ETFC, AMTD, or SCHW).
Anyway, I was not only talking about the software platform but also mentioned the commissions and the breadth and depth of the trading at IB compared to Etrade. But my original response was addressing a post that claimed Etrade had the best platform. My point is not to convince everyone to leave Etrade for Think Or Swim or IB but to correct them when they say Etrade has the best platform, which in terms of functionality it certainly does not. However, everyone is entitled to the user interface design that they like. So if that person said "I find Etrade's platform best suited to me" then I wouldn't have responded.
Reason
I remember my mother telling me when she was growing up in Chicago in the early 1900's there used to be a Undertaker with the company name Ketchm and Killum.
Just like I would think anyone layed out in their Sunday finest at Ketchm and Killum may cause a raised eyebrow or two from those coming to pay their last respects as to how they met their demise I would hate to admit to having my funds at a place called Think or Swim. Too tacky for my tastes.
Reason
Since they don't brag about it on their web site I'm forced to conclude Think Or Swim offers little if any research or historical data or news ticker feeds. Another big minus again all the major players offer in varying degrees depending on which of their platforms you run. I prefer E-Trade's Market Trader over their Pro version.
As far as Options or Futures, I'm not really into that in a big way. Sorry, I don't want or need "some guy that sits around all day making commentaries'. I DO MY OWN HOMEWORK which again is where the rich resources E-Trade provides at no extra change comes in. In summary for me, it's the whole package, not just the ability to get lower commissions and I don't want a service that admits they specialize in options, that means they skim in other areas like the ones I mentioned.
watcher
The first write down comes when the mortgage becomes non performing because people stop paying. They still get to show the note as an asset even though it is not being paid back. The real pain comes after they foreclose and put the property out to auction. This is not being done yet on any reasonable scale. They are resisting initiating large scale foreclosures because they do not want to book those losses. Problem is the longer they wait the further property values decline and the greater the total loss will be.
That is the pain that is yet to come to ETrade and everyone else. I personally know of several home owners that can no longer afford their mortgages because of rate resets. They can't sell because the value has dropped too much. All have stopped making payments for more than 10 months now. Know what the best part is? They have not even been contacted yet by the lien holders!! This is a more common occurrence than is being let on.
Yes, ETrade might be a long term buy, but not now after this unjustified run up on worse than expected earnings. Investors are scared and desperate right now and even the slightest glimmer of hope has them throwing money in that direction. If the company had not given that glimmer of hope those earnings would have sent the stock back down to $2 or worse.
Here is another rub for you. This was an exceptional week for the DOW. Up over 500 points. I expect a significant reversal next week. I also expect that over the weekend as their excitement wears off the stock will drop back down anyway. Get ready for the analysts to downgrade them again because of their earnings and worse than expected mortgage performance. But, hey don't worry about it. If the stock drops low enough you can either short on the bankruptcy rumors that will fly or buy on the takeover ones.
As I said prior, if you eye is simply on a 10 cent difference in earnings for the quarter, your focus is on the side show and not the main event! The EPS estimate was a blatant GUESSTIMATE on behalf of the analysts in the first place. No one knew, 3 months in advance, in this climate what would happen to the HELOC and HE loans. Coming from $3.98/share to $0.20/share, that's a HUGE improvement in EPS.
Your whole fear-mongering of "the worst is yet to come" isn't based in facts. Speak numbers to back your claims. E*Trade showed that delinquincies were DOWN (yes, DOWN!) over 40% this quarter. So, how does that metric support your claim that the mortgages are getting worse and not better? Have you forgotten that the fed reduced rates SIGNIFICANTLY in the last quarter allowing a lot of people to refinance and thus afford their mortgages and loans?
As the BOD said, one quarter is hardly a trend, a 40%+ reduction in delinquincies is something to be happy about. The company doesn't need more assets to sell off -- they're selling off just enough to help raise capital to cover expected losses. They're pricing in $1.5B worth of losses! That's a significant portion of their total portfolio -- anywhere from 5% of the total loans to 12.5% of HELOC (more risky) loans. I doubt we'll be seeing those levels, but even if we do, we're prepared for it!
I think the gloom and doom is getting old here.
Reason
WAY TOO MANY smart-ass types have plundered the stock, options and future markets with the intended purpose of trying to make a quick buck. That flys in the face of fundmential investing principles and it is long past the the time way tougher rules are enacted and ENFORCED.
Naked Short Selling isn't legal; however, it might as well be since the SEC has done NOTHING (or very little) to enforce the law here. They also originally grandfathered in several companies (hedgies) with naked short positions. The fear is that if you pulled the plug, the market might fall apart. Some researchers have hypothesized that there are enough naked short shares out there to cause some major fundamental problems if you suddenly reversed course. Check out the site businessjive.com for more info and a great presentation on the issue.
As for shorting, I agree. It's more like gambling than investing -- you're taking a "bet" rather than putting money into something to see it grow. Oh well.
well just something. two weeks arrived 50k in my etrade account. (from the same bank as ever) but without any reason they froze my account. thry do not tell me nothing. only that "no time frame exist" and i should wait until they call me back. i read that several people have this problem. and that reporting them to SEC is the only thing that get your account back. what i want to say: for getting more liquid money they are killing their trust of their customers.
so from the part of the money they have, keep in mind that a part is because they are freezing it, not because people want to..
Jimmy Goodwin
May 23 02:36 PM
Up to now I've been against the vocal bulls of this E*Trade movement, but I must admit Cindy has finally come with some solid facts and logic here. "
*******
Ok,Jimmy,why don't you enumerate the "solid facts" that impress you so much. What I see is mostly wishful thinking and alleged progress toward targets.
Numbersssss is "wishing" for this to occur:
"So WHEN is the magic moment? Generally, it's when:
A) the company reports a profit after losses, or
B) the company's cash flows have improved so much that it finally can use its internal cash to pay down debt and/or buy back stocks, or
C) the company's analysts support business actions and trends with positive commentary.
If both A), B), and C) -- it's the most powerful combination in the marketplace."
*******
Well hell,if ETFC hits this trifecta,I get bullish too.
But where's the evidence any of this will occur?
Profits and massively improved cash flows in Q2???
As I see it,there's no guarantee that last Q's noted improvement in the loan portfolio won't reverse.Macro trends in housing and incomes don't indicate to me any clear improvement in the mortgage holders lot,delinquencies and defaults continue to trend upward.And the Fed may be out of bullets.I don't know how bad it might be or become but ETFC has around $40 Billion in loans that could get in some degree of trouble.
SA author,R. Middleton has written a comprehensive series on the crisis and other articles I highly recommend,read everything he offers if you want to temper your outlook with some intelligent caution:
seekingalpha.com/artic...
Some other cited issues are asset sales,like the Indian deal just announced. OK,they get the $145m but they lose the rev. and profit going forward and this from a co. that recently was selling themselves as an international player.
Further,they will be paying over $50 million per Q interest to Citadel ,a nasty drag on potential profits.
Exiting the mortgage originatio