E*Trade's Annual Shareholder Meeting Should Pressure the Shorts

On April 25, Dean Laster wrote an intriguing article regarding the fact that E*Trade’s (ETFC) stock has short interest sitting at 20% of the stock’s float (see “Why the E*Trade Shorts Have It Wrong”). Mr. Laster pointed out that E*Trade has no “downside catalyst” and that all the the bad news is priced into the $4 existing stock price. In fact E*Trade’s April 17th Earnings Conference Call presented many positive upside trends for both the brokerage business and the mortgage portfolio performance, so “shorts are in effect digging their own graves.”

This week, on Wednesday May 7, Nick Perry from Schaeffer’s Investment Research wrote an article entitled “Is E-Trade Financial Corp. Poised to Make Another Run?” In this article Mr. Perry affirms the unusual circumstances that the 20% short interest position sets up. He also indicates that the current “contraction in volatility can be a sign that ‘pressure’ is building.” He points out that “a contraction doesn’t suggest which way a stock will break.” However, the “stage” is set for a “pop above the front-month calls but we still need a catalyst to spark the buying.”

What Mr. Perry doesn’t realize is that the catalyst is now here. This coming week, the Annual Shareholder’s Meeting will be held by E*Trade. Will this meeting provide the “Short Interest” holders with their negative price effect? The pressure is there, which way will E*Trade break this coming week, up or down?

Other points of interest are as follows:

1) A concern in April was that stock market and brokerage trading volume would decline because of recessionary trends, which would hamper E*Trade’s brokerage recovery. Since that time the DOW Jones Industrial Average surpassed 13,100 and many economic employment and production indicators have provided signs of positive economic trends.

2) On April 22, 2008, Kanner Frederick Wilkinson, a Director at E*Trade purchased 50,000 shares of stock. Also, Donald H. Layton, CEO, has his compensation/bonus package directly linked to stock value.

3) On January 29, 2008, nine E*Trade directors directly purchased significant blocks of E*Trade stock totaling close to $2 million.

Disclosure: Long

Comments

[Pauly B]

All I can say to this is that hedge funds that bought E Trade saw some value or they wouldn't have thrown in the money the way they did at the company. I took off my shorts sometime ago as this trade was way too crowded and agree that something will happen. E Trade is aggressively fixing their business model after the last CEO left the company in shambles. I hope they survive. I have an account there and am very satisfied with their service and platform.

[Zeninvestor]

EXACTLY! I can't find a downside with this stock that is not fully priced into the share price, but the pressure on the stock continues. The Annual meeting will set the stage for positive announcements, including the April DART's, and depository growth on the bank side. No reason to run from ETFC now!

[__who__]

I personally expect the company to see a run up prior to the Shareholders meeting, and I am expecting two decent catalysts within the next few days.

1. April Metrics announcement, which should be very good given the volume during the month, and

2. CFO announcement, which is rumored to be very good.

These catalysts could support a nice move prior to the shareholders meeting, and assuming they pump up the shareholders at that meeting, the following week could be very nice indeed for the longs.

[quasimatter]

Honestly, the only risk to E*Trade now is an "inside job": I am
suspecting both Layton and Ken Griffin are executing a script
in which they will keep stock price close to $4 and then convert
all debt to equity at $5 range -- essentially stealing this company
for nothing while we all know that this company should be worth
a lot more. This may be one of the reasons the shorts are not worried about having to cover -- because they are going to get
stock to cover the short in a "debt for equity" swap.

Bunch of crooks if you ask me. I am super long and a loyal customer
and I HOPE I AM PROVEN WRONG. And my reason for posting this
is so the MANAGEMENT AND CITADEL know that we are watching
for any shenanigans.

- Quasi

[jackooo]

ETrade service is non existant. Screw ups after screw ups. Pulled one $100,000 plus account but work 5 others at E trade for clients.
Transferred the one account to Scottrade. Same old same old. Not a dimes worth of difference.
Telephone talk time averaged 1/2 hour to 1 hour. These people are not trained properly. Wrong information a lot of the time. Quotes are wrong. Updates way behind the curve.
Check the stock MO on their site. Look at the dividend it pays. Waayyyyy behind the curve.

[quasimatter]

Forgot to mention that if you are an investor in E*Trade come and
join fellow "retail" investors at ETradeInvestors group at yahoogroups.

finance.groups.yahoo.c.../

- Quasi

[Ermilo]

Just remember, right around January, people were thinking E Trade was going bankrupt. The stock hit around 2.60 a share, and I kept thinking...making money isn't very difficult, it just takes common sense. What were the odds of bankruptcy? Very low. Now I'm holding on a nice gain and I'm just going stay tight because slowly, but surely, things are falling Etrades way...Enjoy the ride all you longs, and you shorts....I hope you like homecare health care, because your'e going to need a second job soon when your short squeeze pops against you.

[Whisper On The Wind]

Almost sold mine, but I guess I can wait a bit longer to see what shakes out. If it starts up, I have some cash waiting for a name...

[jbmaria]

"Mr. Laster pointed out that E*Trade has no “downside catalyst” and that all the the bad news is priced into the $4 existing stock price. In fact E*Trade’s April 17th Earnings Conference Call presented many positive upside trends for both the brokerage business and the mortgage portfolio performance, so “shorts are in effect digging their own graves.”



Well,Cindy,today they announced they were exiting the mortgage origination business. Could that be a downside catalyst or is another article coming explaining how that's a good thing for future earnings growth?

[quasimatter]

JBMaria -- them exiting mortgage business is a HUGE good news.

[Logicmissing]

Why would the Shareholder’s Meeting make a difference if the earnings report didn't???

[yj777]

why on earth would ANY company want to stay in the mortgage origination business ???
what planet has jbmaria been living in for the last year?

[quasimatter]

Open letter to E*Trade CEO/Execs/BoardOfDirec... from a concerned share-holder.
======================...

Respected Sirs/Madams,

The increase in short interest over last two week
provides further solid evidence that the stock
price is being depressed for May 16th authorization
of 600M shares which could potentially be followed
by debt for equity swap at the depressed prices.

If company management agrees to debt for equity
prices at the obviously depressed prices with clear
evidence that it was manipulated down by shorts
(a huge percentage of last two weeks "supply"
of shares was short sales); that would prove
beyond doubt that E*Trade Management is working
as an accomplice in a plan to defraud E*Trade
shareholders and letting other parties buy E*Trade
on cheap.

Given the strengthening balance sheet,
increasing revenues and customer base,
and reducing mortgage losses as evidenced
by last quarter's conference call; there is
NO IMMEDIATE need to reduce debt by equity
swaps.

At this point, I suspect that people shorting
this stock are the same people who are going
to acquire shares in debt to equity swaps
and are not concerned about having to "cover"
their shorts. By rewarding them with stock
at cheap prices, the CEO would essentially
be participating in such plan and violating
fiduciary duty towards share-holders.

I would like to plead the CEO and E*Trade
management/BOD in this open
letter NOT to approve ANYMORE debt for
equity swaps in near future until the stock
price has stabilized at a normal level.

- Quasi

P.S.: This is going to various forums,
Investor relations at E*Trade (previous
emails to them have gone unanswered) and
SEC both as an open letter to CEO and a
possible "pre-warning"... about a crime about
to be committed.

[VP of Common Sense]

Sheesh, I was just hoping for a non-manipulated stock play. Foolish am I.

[wl]

I see etrade stock is heavily manipulated by hedge funds. They shorted a lot of shares. Their goal is to bankcrupt etrade. One way to do that is to keep etrade's share price low, so it will scare away many potential customers. Without much increase from core income, etrade might eventually bankcrupt. Etrade ceo's most important job right now is to gain back people's confidence in etrade, and boost its share price to a good looking level.

[seeksome]

I am banking on ETFC for an early retirement it should return to pre-mortage problem levels than I am set.In the meantime you can all help me out by visiting: seeksomething.com THANKS!

[mikemichaelson]

Is a buyout coming imminently? $10 per share????

[Voice of Reason]

E-Trade has been an attractive buy out prospect for years. All the other players have been lusting after it. The only thing that stopped them was they thought they could woo customers away in groves, hasn't happened. Most E-Trade customers tend to be loyal. Now that the banking disaster is starting to resolve, seems like clear sailing ahead from my viewpoint.

I suspect E-Trade will be North of $10 by this time next year if not sooner. I'm not selling, already made a nice profit, don't even have a protective stop at this point.

[Rational_Facts]

While quasimatter's paranoia is rational, it's not possible because of the large institutional ownership of this stock. Any "inside job" would trigger well founded litigation by large this constituency and muck up opportunity for sometime which is not any shareholder wants. Currently the stock swap strategy is being executed with non-registered shares at prices good to the current shareholders (read the filings...) and prevents shorty from using them to cover.

[jbmaria]

Well Cindy,the anticipated Annual meeting has come and gone and one attendee described it thusly:

Shareholder mtg. 16-May-08 02:09 pm
Here are my 2c worth on the meeting (I was there):

1. ETrade is in a withdrawl mode to survive. They are pulling all stops to reduce costs (debt) and sell non-core businesses. I had the feeling that there is a phobia just to keep the business alive.

2. Layton is not a visionary. He appears to be a very methodical bank beaurocrat who is intent only on stabilizing ETrade.

3. Reading through the lines we can expect another 2 years of 'steady as she goes' before anything else happens. The problem is more writedowns coming

4. All growth initiatives are at best on hold or are being jettisoned to raise cash. An example is 2 questions asked a) what happened to the UK Bank Charter approval. A 'don't care' answer to that, and b) why have a separate account for global trading whereas competitors don't have it. 'Don't know answer' to that.

5. The answer to the question of HELOCs frozen across the board or on a case-by-case basis was ambiguous. First answer was case-by-case and then the statement was made that ETrade will eventually exit the HELOC program and outstanding credit on all accounts are being frozen to exit the business.

Summary: My overall feeling was that ETrade will be dead in the water for another 2 years at least. The competition is taking advantage and leaping ahead with their own initiatives. ETrade will have to make a quantum leap to catch up no less to surpass the competition, a daunting task at best when they are behind. All bets are off if Layton is replaced in about 2 years by a more aggressive individual.

run35ok



Was it better for you?

[jbmaria]

going to post this on Cindy's boards as many asked me for more detailed reasons for my caution:


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.

[dig4gem]

What is JBMARIA's agenda??

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?

[jbmaria]

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.

[jbmaria]

Readers should know that Cindy Reed is abusing the process.

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