E*Trade Increases Authorized Shares to 1.2 Billion

In light of recent news, E*Trade Financial Corp. (ETFC) shares have held up relatively well. On Friday, the company announced the results of its annual shareholder meeting in which the proposal to amend the share structure to increase the number of authorized shares of common stock from 600 million to 1.2 billion was approved, and E*Trade shares only closed down 1.1% that day.

The stock dropped a bit more on Monday, and was down by 6.9% after filings with the Securities and Exchange Commission showed that E*Trade registered to sell up to 94.9 million shares of common stock and issue close to $2.3 billion worth of bonds. However, there was little spillover into yesterday’s trading session perhaps because the filings were only a matter of time.

Back in November, Citadel Investments purchased 84.7 million shares of E*Trade as part of a $2.5 billion cash infusion. Given the lackluster volume and a lack of follow-through to the downside, it appears that the market has largely priced in any dilution.

Comments

[Ben Williams]

I agree with this assessment for the most part that the dilution of shares has been priced in. The issuance of more shares is also key to restructuring the debt and putting the company in a better light as far as capital is concerned. They are poising themselves for a possible takeover in a positive note and it looks like they have survived their near demise back in November. Every day that goes by they are getting back on more solid ground financially and CEO Layton has done an outstanding job in turning this near bankrupt company around in a short period of time. They certainly have a long uphill battle to climb, but they have done the most important and imminent move of restoring confidence to their customers and shareholders and this is reflected in the stock price holding around the $4/share mark and the additional amount of accounts they are adding back to the fold each month.

[prescient11]

To be clear, and I mean crystal clear, and perhaps the editors of Seeking Alpha need to make a correction here:

No new shares are involved with this registration. It is merely a shelf filing regarding the shares and debt that Citadel and Blackrock already hold.

No more dilution, period. I think this may give the wrong impression. Best regards.

[igotpaged]

Yep, it's only a security requirement. No new shares!

Technically it seems to be only UP-momentum from here on given all the right things management has been doing lately.

[kurt walter]

Terrible

[jackooo]

Ben Williams
Your saying the customer and share holders are more confident is wrong. I am both.
The foul ups continue. Last month E Trade had to send out two statements for the same month. The first one was missing the short activity.
This company may be bought but if so when and by who and by how much? Right now I have better things to do then reinforce their marginal stock price. Management is non existent when I call. I am teaching them how to react to customer complaints and their web site errors.

[Ben Williams]

jackoo, I am basing my assumption on the fact that more accounts are being opened each month and that the share price has not dropped significantly in recent months. I am not making any commentary on the customer service or trading platform, but instead on the company from a liquidity and capital standpoint and number of accounts being created that fled back in Nov and subsequent events. Your beef appears to be with the service of the company which is another issue. Good luck with that.

[rl]

the fact is that etfc was hurt badly and we're all very sensitive with any potentially negative activities. the stock price alway reflect what the market for casts the speculative value of the stock and often enough it does not reflect the actual value of the stock. the current price is based on current market condition which leans much toward a bear market. if etfc is holding steady under all these negativities imaging how bullish it will be as soon as people/money return to the market. i think it'll be 2 to 3 years before we can see it in $20 dollar range but if layton does a good job building a good fundamental foundation, etfc can very well move to the high of bubble years and beyond. i think it is all about a good foundation and continuous good business innovation that makes believers out of investors.

[Go US]

Buy and sell this puppy ETFC just keeps making me money!!! good news bad news, good news bad news..... Just keep spinning I like this stock. Sounds like Nemo LOL... Yea this will be a ROCKY story but in the end ETFC could make it BIG I mean HUGE!!!! Just stay away from a Merg. or buy out. Keep our fingers crossed.

[Ben Williams]

I agree with rl, every day that goes by that this company survives, is another day towards financial recovery, which will eventually return to making a profit. Given the current economy, all the negative news about the company with debt and possible share dilution, and the shorts piling on, ETFC is making a huge statement by merely existing. The financials are the most beaten down in the market down on average 11% for the year, so they also have the most room to gain in the future. While summer does not look to be the answer, the fall could prove to be the rebound and starting to see the share price rise with the financials in general and as well as a company due to the increasing positive balance sheets that are stopping the bleeding from November.

[jackooo]

Ben Williams
I viewed your comments from a different point of view.
ETrade offered me $400 to bring one of my accts. back to them. It was in excess of $100,000. I pulled it from them to try Scottrade. This is an expensive buy back to get accounts. Don't you think so?

[oregonduck]

Etrade seems to be a good buy. I cant see a huge down side. The company is not going to be bankrupt because it really is one of the best trading platforms and really has turned things around. I agree that even if the stock price goes to 6 or 8 at the end of the year, I have 15,000 shares with a basis of 4.08 and I would be happy. I can trade my way all the way to the top. I read the balance sheets and, absent a total stock market crash where we will all be in a world of hurt anyway, I cant see anywhere to go but up.

[yag]

jackoo: Paying you less that 1/2 of a percent to get your account back does not sound all that expensive to me. I would not move my account for such a small sum.

[rl]

jackooo,

don't put back your money with etfc even if they offer you more, do it because you know it will serve you well. $400 is just a small bonus and i'm sure they calculated the amt based on the return of ad dollar spent. i would just buy etfc with the money no matter where you put it, of course it wouldn't hurt for you to contribute to the growth of your own investment.

[jbmaria]

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.

ETFC is a financial that has managed to put itself in an extremely severe competitive disadvantage to competitors Fidelity,SCHW and AMTD and its recent exit from mortgage originations virtually assures growth is the farthest thing from their minds right now Survival is their primary focus and gamblers only should be considering this equity.

[jbmaria]

The MF seems to equate ETFC's status with TMA and others diluting their shares:


www.fool.com/investing...

"Whether Thornburg will be able to keep its doors open is another story. However, the massive share dilution and delayed filings leave few reasons to argue in favor of owning the company's shares. Thornburg, along with fellow leveraged share-diluters E*Trade (Nasdaq: ETFC), Ambac (NYSE: ABK), and (on a much smaller scale) Citigroup (NYSE: C), have dug their own graves.'

[rl]

jbmaria,

read this: seekingalpha.com/artic... and think about it.

the MF article you refered to has barely any substance when it mentioned etfc at the very end. it's a very poor stab to get people to read the article. we all know that there is a LARGE number of investors watching etfc second to people watching siri and the article on MF simply wanted the attention. personally, MF aritcles often tickles the surface of a discussion without much depth and often leaves the reader with nothing.... i'm often irritated after reading an article from the fool that has big titles and didn't gain any insight at all from reading it.

[wisdomous]

as a shareholder i can not stand dilution. i voted against it and always will. see how many of the new shares will end up in the board's and management's hands. as for the stock itself it will go up to $8 by q3 09. how do i know? simple math, but i'm not willing to share

[rl]

wisdomous,

your number is belowe my conservative estimate. but double an investment in 2 years is kinda like a 40%+ gain per year.... still pretty cool. i'm counting it to be around 10 if not a bit more by the end of 09. it'll rocket after that.

[jacobsen]

ETFC has a venture every few years of failure. Last time I bought it 2.88......sold at 22. Same old story. ETrade in dire straits. This time it's actually true. With JPM man at the helm.....experience and knowlege will win the day. Don't second guess ETFC.jump in.the water is fine. Remember write downs become write UPS!

[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]

Be very careful with ETFC.
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.
And speaking of Citadel,FWIW,in March a hedgefund manager stated:

"The anonymous fund manager said Citadel, which did not return a call 
seeking comment, paid such a low price for the mortgage book, and got 
such favorable terms on the loan, that it would have been foolish for 
other hedge funds to blindly follow into the stock. After all, he 
said, Citadel was getting in cheap.
"Why would any bull point to Citadel?" he said. "

Frankly,mgt. is another reason I'm wary of ETFC.
Look at the facts.

Layton,according to published reports,was not the BOD first or even second choice for the job.

Layton,to my knowledge, is not known as a turnaround specialist,per se,and he did have some Enron rumors surrounding his former job,perhaps even contributing to his retirement.

To date,the pps has not improved.

Layton is very much at the mercy of KG,who I trust as far as I can throw.

Layton's heavily touted pay package would do best if he succeeds at a turnaround BUT he is getting a $1 million/year cash and will get a nice payout in the event of a buyout and I don't think there's any caveat as to buyout price.This is from memory so you might want to check the filings on that,not that momentous an issue though.

Bottom line,he hasn't been there long enough or achieved enough to rate him so he remains a question mark,IMHO.

I have more concerns but for now I think you can see my caution on ETFC as an investment is quite logical.