E*Trade: Primed To Turn Around? 62 comments
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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.
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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.
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.
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.
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.
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 origination biz. Sounds good given the aura surrounding mortgages but recall this was once probably their biggest moneymaker,now gone for the conceivable future.And let's not forget it's expensive to exit a biz line,severance packages and all that.
Debt for equity swaps. Yes,they take debt off the books,a good thing but they are dilutive to shareholders.
And speaking of dilution,keep in mind the recent authorization of 600 million shares by management.
Those pumping ETFC would have you believe that mgt. just ran out of authorized shares for routine corporate purposes like ESOPs and debt for equity swaps.Maybe, but did they need to double the existing 600 million shares,seems like they have something in mind that a more modest 1-200 million shares might not cover.
Curious!
At the same time,Citadel registers for "potential" sale over 90 million shares it got for lending ETFC $1.9 Billion at 12.5 % last November. It also registers this debt for "potential' sale at the same time as the share authorization. Curious!
I'm not going to pretend I know what either ETFC or Citadel is up to but unlike the pumpers I won't assume it's purely coincidental and /or innocent toward shareholders.
If nothing else it adds a huge dose of uncertainty to the equation and we know how uncertainty is treated by Wall Street.
I have more concerns but for now I think you can see my caution on ETFC as an investment is quite logical.
Not only that s/he writes 24/7 negatively on E*Trade in such venues like Yahoo ETFC message board, but strangely positively on E*Trade's competitors on the discussion boards of E*Trade, even positively on the Schwab fund that a lot of their investors are now alleging being misled and suffer substantial losses, yet JBMARIA also claims that s/he HOLDs E*Trade shares!
So JBMARIA,
Do you mislead message/blog boards when you say you "hold" ETFC?
Do you actually short ETFC?
Do you hold SCHW or any of E*Trade competitors' stocks?
Do you work, or in the loose sense of the word "work", for one or more competitor(s) of E*Trade and manufacture all your negative posts for some hidden agenda, like an attempt for E*Trade's competitor to acquire E*Trade on the cheap?
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 origination biz. Sounds good given the aura surrounding mortgages but recall this was once probably their biggest moneymaker,now gone for the conceivable future.And let's not forget it's expensive to exit a biz line,severance packages and all that.
Debt for equity swaps. Yes,they take debt off the books,a good thing but they are dilutive to shareholders.
And speaking of dilution,keep in mind the recent authorization of 600 million shares by management.
Those pumping ETFC would have you believe that mgt. just ran out of authorized shares for routine corporate purposes like ESOPs and debt for equity swaps.Maybe, but did they need to double the existing 600 million shares,seems like they have something in mind that a more modest 1-200 million shares might not cover.
Curious!
At the same time,Citadel registers for "potential" sale over 90 million shares it got for lending ETFC $1.9 Billion at 12.5 % last November. It also registers this debt for "potential' sale at the same time as the share authorization. Curious!
I'm not going to pretend I know what either ETFC or Citadel is up to but unlike the pumpers I won't assume it's purely coincidental and /or innocent toward shareholders.
If nothing else it adds a huge dose of uncertainty to the equation and we know how uncertainty is treated by Wall Street.
I have more concerns but for now I think you can see my caution on ETFC as an investment is quite logical.
SA was set up to provide a voice for those without a platform for their views to make themselves heard.It's a good idea and I've read a lot of great articles on this site.
SA was not set up for people to shill their investments although I suppose every good idea eventually gets corrupted and Cindy Reed is simply taking the abuse to its inevitable level.
Some facts:
Cindy went long ETFC and decided to explain her position on SA in mid April.No problem there,essentially what the SA site is all about.
Then Cindy got a "bright idea". There's no real limits on SA,Cindy could flood the news with positive articles on ETFC and theoretically profit for her trouble by stimulating the stock pps.
So,our heroine marched over to the yahoo message board to actually recruit help in perpetrating this distortion of the process.
There she found other shills perfectly willing to join the cabal and promote the stock.Cindy trolled the board under the name savyinvestor11,the entire story can be followed by reading her posts:
search.messages.yahoo....
Her main partners in this blatant and undeniable promotion on ETFC are numbersssss and prescient11, other sympathetic and contributing posters include dig4gem, rossetti2000, methusalaw, piyrwsc, krisscritter_1, quasimatter and epiquette ,to name a few.
What these slimy folks are doing goes against the spirit if not the letter of the rules of SA.I don't like it and I'm going to dog them with this warning.
I have no position in ETFC after selling my last shares in June'07.I was a vocal long for 4 years before that and am currently a very vocal cautionary voice on the stock.All my posts can be found on yahoo under JBMARIA.
Here's the list of Cindy's pumps in chronological order:
Citadel Infuses E*Trade with Strong, Experienced Management
on May 29, 2008 about ETFC
Who Will Trigger E*Trade's Magic Moment - and a 111.4M Short Squeeze?
on May 29, 2008 about ETFC
Seeking E*Trade's 'Magic Moment'
on May 23, 2008 about ETFC
E*Trade: What the Analysts and News Haven't Told You
on May 22, 2008 about ETFC
Schwab, E*Trade: Monthly Activity Comparison and the Industry Average
on May 15, 2008 about ETFC, SCHW
E*Trade's Annual Shareholder Meeting Should Pressure the Shorts
on May 09, 2008 about ETFC
Comparative Price Shopping: Selected Banking, Mortgage and Brokerage Stocks
on Apr 21, 2008 about BSC, CFC, ETFC
E*Trade: Primed To Turn Around?
on Apr 18, 2008 about AMTD, ETFC, SCHW
they have a beautifull, intuative trading platform that is so easy to use. I opened an acount there a month ago and I am very pleased.
I do not own any e-trade stock but I like its trends.
www.activate.co.il/mar...
On Apr 19 12:28 AM Beau Cat wrote:
> Layton is giving the right message and his actions speak loudly.
> I believe he is a straight shooter and wants to help turn ETRADE
> into a profitable company. Fear has subsided considerably, but there's
> still some risk on subprime exposure. The short sellers must be biting
> their nails right now and looking for an out as the turn around plan
> is coming together with brokerage customers returning to ETRADE in
> waves. This alone should soon spark a good short covering rally,
> especially when you consider the large percentage of shorted shares
> out there. Institutional Investors will start to take ETRADE seriously
> again and get into the buying mode too. Time to go long baby!