Metrics, Mortgages and Analysts 65 comments
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May 2008 brokerage metrics were released this past week by E*Trade (ETFC), Schwab (SCHW), and Ameritrade (AMTD). Reuters summarizes their comparative performances nicely by stating:
NEW YORK, June 18 (Reuters) - E*Trade Financial Group Inc (ETFC) on Wednesday reported its average daily trading volume rose 4.1 percent in May from a month before, slightly outperforming its rivals TD Ameritrade (AMTD) and Charles Schwab Corp (SCHW).
Average daily trading volume, a key indicator in the on-line brokerage industry, increased 10 percent from a year earlier while its retail customer assets were up 3.9 percent month over month.
But its retail customer assets were still down 15.6 percent over a year before. In November, customers fled in large numbers after E*Trade's holdings in risky mortgage securities generated big losses.
At a Sandler O'Neill conference earlier this month, E*Trade's Chief Executive Donald H. Layton said the brokerage was focusing on its main brokerage business as if there was no crisis.
E*Trade continues to outperform in the online brokerage market and for all of 2008 has strongly established that “their core business is intact.” But the mortgage portfolio problem is constantly being presented in current articles as a problem; not because recent developments or announcements from E*Trade indicate any problems exist, but because unplanned exorbitant subprime write downs are daily presented in the news from other banks and financial institutions; so the assumption is that E*Trade’s Mortgage Portfolio must be having the same issues.
This assumption that E*Trade’s Mortgage Portfolio currently has similar problems is completely contrary to the report by Donald Layton earlier this month at the Sandler O’Neill conference. Below are a couple of slides and commentary by Mr. Layton from that conference.
How is the home equity doing? It is the big item here. Interestingly enough, markets have been bad, economy has been bad, but as we show here in the first quarter, something is a little better than the usual run of the mill troubled home equity portfolio on [E*Trade’s] books.
Per Layton’s comments:
This chart shows the change in the total delinquencies, one universally regarded leading indicator for charge offs during the last several quarters … what you see usually is that there is a credit cycle where delinquencies grow rapidly, then they grow at a low rate, then they go flat, then they will decline. The first quarter was quite a surprise because it showed a very small dollar growth in the delinquencies and as a percentage (8 percent) a very low growth rate …
In addition, the leading indicator of delinquencies, even more, is the early stage delinquencies (the green line 30 to 89 day buckets) which are called special mention loans. We had a reduced growth rate in the 4th Quarter and an absolute decline in the 1st Quarter. While it is too early to claim victory, this was very positive.
Mr. Layton finished by commenting on a common question he is asked:
Why is E*Trade having a more favorable experience in regards to portfolio performance in comparison to Bank “X” and Bank “Y?”
He gave a few reasons why: 1) Early in 2007 E*Trade ceased to accept the types of “2007 vintage” loans that are resulting in higher subprime defaults. The “2007 vintage” loans are much worse than 2006 or 2005 loans and E*Trade has a lower quantity of those problematic 2007 loans; and 2) E*Trade maintained a higher FICO score requirement for loan applicants. While this has not prevented defaults, it has resulted in lower delinquencies.
In summary, the performance of E*Trade’s Mortgage Portfolio and management’s position of “full disclosure” are unusual in the current financial industry. As a result, analysts have recently responded favorably to E*Trades positive results.
On June 11, the S&P Upgraded E*Trade and specifically stated,
We think management has been straightforward in their disclosure of exposures to troubled mortgage securities and has made strides to reduce this exposure. It has also been able to attract customers and post strong trading volume despite balance sheet issues. We expect loan loss provisions and valuation adjustments will continue to weigh on results, but we think ETFC has acted in a timely manner and should be able to sustain its business.
A summary of E*Trade’s analysts, change dates, rating changes, and target prices is shown on the chart below (click to enlarge).
The most recent analyst change prior to the S&P was a Target Price revision to $6.00 per share on April 24, 2008. This target price by analyst Michael Vinciquerra from BMO Capital is significant because Mr. Vinciquerra is a 4-star accuracy ranked analyst (see here for more details on star ranking of analysts). An average of all the analyst’s target prices is $4.89.
Since late November 2007, E*Trade’s share price has been range-bound: dropping as low as $2.08, rising as high as $5.48, and sitting at around $4 for the past two months. The current $3.60 to $3.80 range is lower than in November 2007 when no one was sure whether E*Trade would survive bankruptcy.
E*Trade has done more than survive bankruptcy. April and May metrics were better than the industry averages, and their loan portfolio is actually performing better than management expectations. Unique marketing strategies, innovative brokerage tools (BlackBerry), improved brokerage metrics, and stabilizing balance sheet transactions are assurances that E*Trade’s shareholder value will continue to improve, especially with the potential continuation of favorable results in the 2nd Quarter 2008 report next month.
As stated in a prior article, many financial stocks like Lehman (LEH), Merrill Lynch (MER), UBS AG (UBS) and Citigroup (C) have just started to reveal their problems, are questioned regarding whether they are revealing the true extent of their problems, and are still figuring out what they are going to do to survive. E*Trade’s true position among them is more of a “First One In, First One Out” and moving forward with success.
Disclosure: Long ETFC
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This article has 65 comments:
the apparent turnaround.
The reason the 'street' does not see it is fear, and part of that is well founded since many regulated banks were able to hid portfolio issues from regulators through their sheer size and the complexity of the deals. Cindy's point about 'first in, first out' of the crises is well founded. The fact that E*Trade owned up quickly and sold the sub prime to Citadel for a deep discount has set them up to exit the credit crunch early. Q2 will be the real sign that their recovery, if not complete, is well down that road.
theinvestingspeculator...
Who said Etrade is immune? Stop constructing straw men. Etrade's stock price has been destroyed because everyone assumes they will get hit very hard. So think before the next time you write, for all of us.
Speculator, your analysis is about as good as Wez's. Thanks for your self-promoting non-analysis.
Thanks for continuing to accumulate and present fact-based reporting of Etrade. So much of the market analysis has become "Cramerized," with pure opinion and sensationalism that it becomes very hard to see what ground-floor sensibility even looks like. Thanks for the clarity... you are a beacon.
Hopefully someday your "colleagues," in the investment community will join you in writing articles that are based in reality.
Thanks for Listening.
VERONICA
The advertising spend must be significant at Etrade. Can't wait to see earnings for quarter 2!
Her latest piece of puffery would have you rely on management pronouncements and analyst opinions.I can almost hear the chorus of sighs and "Uh-ohs" arising from the readers now.
Take a few minutes and look back at the pronouncements of virtually every CEO in the mortgage space for the last year or so.
After reading that endless stream of lies and half truths,why would anyone in their right mind believe a word any of them uttered?????
Then look at the BMO analyst and note how long he remained at "Outperform" on ETFC in '07. All thru the year from the mid $20's all the way down to the $4-5 level when he finally downgraded 11-30-07.
It's fair to assume this guy was OBLIVIOUS to the mortgage issues at ETFC and yet now we are asked to trust his "insight".Color me skeptical.
Seriously, Cindy, you damage your credibility by lauding this one company, all the time, never faltering like this. I'm almost convinced you are a paid pumper.
Nah,who'd pay her for this stuff????
Just grab a stapler and go find yourself a few telephone poles......
Sorry to piss on the pumping game the two of you are up to. Looking at your comment history reveals you two as doing nothing but pitching Etrade....so much for your "insightful analysis". It's not hard to see Etrade's financials, I know they have cash, they also have a huge loan book that maybe more subject to losses than what the CEO thinks....as has been the case with every other bank. I was simply countering Cindy's constant pumping of her position in Etrade. Balanced discussion are much better than one sighted prayers that everything will be fine.
Long ETFC btw........
However when you start calling people idiots and name calling, that ain't cool. You can disagree with Cindy and others, but lets name start downing people because they do not share the same opinions with you. Lets keep this forum clean debate. State your opinions and let the readers decide what they want. PEACE!
$7 for a limit order?
Having said that, I am not caugt up in the pinheads who want to rain on E-trades parade where they HAVE shown improvement, HAVE improved their capital position and have increased business. People presenting the numbers can lie, but the numbers don't. E-trade is moving in the right direction and you can post back here a year from now and see who is right and who is not. Hear me now, believe me later.
We'll see won't we. I'll remember this come 1Q of '09 and we can see whose call was right.
So rather than listen to your blathering Monday morning quarterbacking about oil, etc. How about you enlighten us as to your calls that will take you to 1Q of '09 and we compare then, shall we?? I believe ETFC will yield a 200% gain by then.
We await your genius.
This site has a huge amount of rabid ETFC fan "boys", Cindy being one of them. I hope this stock goes higher, but reading all the desperate bullish comments about ETFC and SIRI on this site is pathetic. Just because you own a stock and want it to go higher doesn't mean you have to put the blinders on and start pumping.
The fact is, E*Trade's comments in June's conference are something that is not generally known to the investment public. Since that information indicates E*Trade will be able to maintain unique performance differences in comparison to the industry, I felt those comments needed more publicity. My decision to publish that information shows that I have confidence in Layton as a man of integrity; unlike other Wall Street Financial Company CEOs. His reputation and experience speak loudly, and he would not risk his reputation to mislead investors regarding E*Trade's Mortgage performance.
I have shared my "Due Diligence" in deciding that I am going to hold on to my long position in ETFC. If you don't feel the same, then sell out your position or don't bother buying the stock.
I am not a paid pumper, nor do I write any lies, unless a positive attitude is construed to be a lie. I fail to understand how my presentation of my "due diligence research" to maintain my long position in holding a stock compromises my integrity as a researcher. I am pleased with my research, pleased with this article, and pleased with my long position in E*Trade. Hope you all have a great day!
Not sure why you're so enamored of Layton?
Press reports confirmed he wasn't the top choice of the BOD.
He's not a turnaround expert.
He hasn't done much for the stock price.
His policy of announcing dilutive swaps after the close on Friday's is considered slimy by many Wallstreeters.
And ,rightly or wrongly,Layton was tarnished by some involvement in the Enron debacle.
Please explain what he's done to earn your adulation.
nv.intellectspace.com/...
study the information from this link and you will see that he is very qualified to lead E*Trade through this difficult time. I have never heard his name linked to Enron so I think you are just dropping that "well known negative" out here with no reference to back it up. Give me a reference for this Enron involvement so that I can feel that you have integrity and factual basis for what you say.
he sent an email while at jpmorgan to execs saying enron may be doing some shady stuff. they went after him like they are doing the bear sterns guys for no reason, just to find a scape goat.
he was first to realize the problems which is a testament to his expertise. i don't see it as a negative.
That's why my ID is over 10 years old and I stand behind every post even though a few of the calls over the years weren't exactly "brilliant".Note that your pumper partners "numbersssss" changes his often and the other boy wonder pres just started posting in January-wonder why? Prescient11 even admits ETFC is his first major stock holding,did you know that?
That said ,your inability to do even the most basic research on Layton is troubling. Everyone who follows the OLB space knew about Layton and Enron,as minor as it might be,only a rookie pumper like you would be in the dark about it.
A simple google would have found it.
Sad to see what passes for "expert research" on SA these days.
Cindy,you know I don't lie or you should.
That's why my ID is over 10 years old and I stand behind every post even though a few of the calls over the years weren't exactly "brilliant".
Note that your pumper partners "numbersssss" changes his often and the other boy wonder pres just started posting in January-wonder why? Prescient11 even admits ETFC is his first major stock holding,did you know that?
That said ,your inability to do even the most basic research on Layton is troubling. Everyone who follows the OLB space knew about Layton and Enron,as minor as it might be,only a rookie pumper like you would be in the dark about it.
A simple google would have found it.
Sad to see what passes for "expert research" on SA these days.
Even more germane,why do all the ETFC pumpers hate Bhatia,one of the few analysts who warned of the problems in August
BEFORE everyone started talking about them.
Shouldn't that make him a bit of a hero?
It does to me.
""I AM QUEASY." Complex deals involving cash advances raised concerns with JP Morgan Vice-Chairman Donald H. Layton. "We are making disguised loans, usually buried in commodities or equities derivatives (and I'm sure in other areas)..." Layton wrote in an internal 1999 e-mail to credit-risk managers that was introduced as evidence in the trial. (Parenthetic remark in previous sentence is Layton's.) He also wrote: "I am queasy about the process."
When pressed to explain what he meant, Layton testified that his concern was with such lending practices in general, and he could not recall the controversial transactions with Mahonia. Layton would have no further comment for this article, JP Morgan said.
From the get-go, JP Morgan has insisted it followed the law in all its opaque deals with Enron. In July, under questioning from Senator Carl Levin (D-Mich.), then chairman of the Senate Permanent Subcommittee on Investigations, bank execs asserted that there was nothing improper about its Mahonia deals -- the same assertion Harrison made last week. Yet in August, under growing pressure, JP Morgan announced it was forming a committee to review its practices."
That actually gives me more confidence.
Legally,he's guilty only of wondering out loud if something funny was going on.We're not holding him to the highest standards here,a real "boy scout" might have made some real noise.But I'm adult enough to know how biz works and also smart enough to think this is a small negative for a CEO running a co. I invest in.
If nothing else,it shows at least a little willingness to play ball with others to cover up shady stuff.
There was talk he retired early over this smear but how do you nail that down-you can't.
Compared to the likes of Lehman, Bear, Citibank, Bank of America, or Countrywide, Etrade sits on a small acreage of financial real estate, one that it can "till" and one that it can build upon without being overwhelmed by excipient, dilutive market conditions that might continue to destroy its core brokerage business.
Etrade is compact; it is strong, and it is ready. And if I am not mistaken, Etrade also has a 723 million dollar tax write off that it can carry back two years and forward 20 years. If that is the case, Etrade can carry back about 523 million dollars against taxes paid in 2005 and 2006, and Etrade will be left with about a 200 million dollar carry forward (check the Etrade balance sheet posted on the NASDAQ website). This tax credit may be the reason why Donald Layton mentioned that Etrade's bank would be self sufficient going forward. If my thinking is correct, 732 million dollars will provide substantial support for Etrade's turnaround effort.
Once again, thank you kindly, Cindy, and please continue to inform us concerning Etrade's future progress.
Perhaps because there's only two logical conclusions,you left it out intentionally since it didn't fit your thesis (you lied by omission) or your research skills are severely absent or biased?????
Anyway,pumpers are always citing Layton's pay package being tied to performance.That's true enough but there are some other ways to look at it.
Layton's got his $1million stock buy back and plenty more with any luck at all.That buy of stock was IMHO, a down payment on the job he wanted and not a big amount to him,he earned $15 million total compensation his last year at JPM. If he hadn't been appointed CEO of ETFC he might have walked and sold his tiny stake-not much of a risk on his part.He's pretty well covered as I see it.
But below is the language from the SEC filing describing his ETFC CEO compensation:
"Mr. Layton will receive an annual base salary of $1,000,000, and the Company granted to Mr. Layton stock options and restricted stock, which will vest on a quarterly basis through 2009 and have an initial aggregate value of approximately $15.4 million (with the value for the stock options based on an option valuation methodology and for restricted stock based on the intrinsic value on the grant date). Mr. Layton and the Company will enter into an employment agreement with a term through 2009, which will provide for no further equity grants and no opportunity for any cash bonuses during the term. Under the employment agreement, if Mr. Layton is terminated without cause, or if after a change in control, he resigns for "good reason" (as defined in the Company's previously filed form of executive employment agreement), he will receive a severance payment of $5 million and accelerated vesting of his equity awards. He will not receive separate compensation as Chairman or as a director."
Is it possible that even if Layton presided over the sale of ETFC for only $1/share,he'd still get a $5m bonus and restricted shares could still be granted to him then????? That seems to be the way it reads?
Well, I read through what you and WEZ said about the 1999 Enron problem, did some research, and it seems like you are extracting some commentaries here and there; I still have looked around now and have not been able to find any conclusive link to Mr. Layton and Enron; except for some minor interactive type things that can happen in the business world. He definitely was not "IN" on anything illegal that happened there.
Now you are also bashing the entire analyst community for missing the mark on the "subprime crisis." Well JB, I must say, my little article here has you way excited. I take that as a compliment that the content of my article would prompt you to analyze Layton's activities in 1999, and attack the entire Capital Market Analyst Group as having no credibility.
These types of things damage your credibility, and overall, I find them kind of amusing because you have no true facts backing up what you say. You are also now running some hypothetical storyline proposing an exit and dump on E*Trade Shareholders by Layton for $5M. Again, that won't happen because his management style is to grab on to the challenge and takes it to the finish line (or to the point where the baton can be handed to the next runner). Where in his professional career has he dropped his responsibility and taken the cash? What other story lines have you figured out in your bashing. You and "Wez" need to have a "private meeting" and discuss your next bashing strategy; and this time please try to get some solid facts behind you.
I still really like my article, like my life, and am happy to hold a strong and long position in E*Trade.
http:// thestreet.com/story/10......
This more detail-coverage article shows that Layton DID his job. After all he is the "fourth highest-ranking executive at J.P. Morgan." Do you think he was in on making these oil and gas deals? No he has an administrative position and his responsibility is to tell the people working under him on the oil and gas deals to do things right! That is just what he did.
In 1999, his e-mails say he felt "queasy" and because of that he "sent ... e-mails to a number of bank officials and asked them to look into the deals and 'MAKE SURE THEY ARE DONE RIGHT.' [emphasis added]"
Layton didn't just send ONE e-mail to ONE bank official. He sent a NUMBER of e-mails to a NUMBER of bank officials. He did what he should do to get the transactions DONE RIGHT.
I am so glad that you encouraged me to do the research on this. It has been informative.
messages.finance.yahoo...
h ttp://thestreet.com/story/10...
h ttp://the street .com/story/10060522/1/...
http://
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thestreet
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10060522/1/
jp-morgan-exec-turns-a...
You claim the man is a brilliant paragon of virtue but you left out the reason many believe he retired from a job paying $15mill./a year-it's relevant.
It your ineptitude that's being questioned,not his.
I just quoted Layton's comments from the June 2008 Sandler O'Neill Conference and have stated that I feel he has the work ethic and management ability to produce results. You are just trying to discredit him by digging up things from 1999.
I am so done with this thing. Your 1999 tangent was never a viable topic to be researched or discussed. It is history that really has no pertinent relevance to current market issues nor does it have any bearing on Layton's responsibility as the CEO of E*Trade.
I've been dismissed by Queen Cindy.
If there's anyone still reading this dreck I suppose I'll just let you figure it out.
Sorry for your delicate condition,try a bromo, but my questions are valid and relevant.Cindy is writing pump pieces,cherry picking only the best looking data to sell her position.
Simple example,Cindy cites the S&P upgrade and quotes the analyst who sees signs of stability but conveniently leaves out that S&P simply went from sell to hold and set a target of $4,about where the stock was when the upgrade came out. Then she focuses on the BMO guy raising the target to $6. I ask why the BMO analyst who got it so wrong last year should be trusted now? That's in addition to conveniently leaving out Layton's little brush with scandal while asking readers to buy into his pronouncements and not acknowedging he was not the first choice for CEO and hasn't helped the stock price.
Cindy is on record on the yahoo board of planning this series of pump pieces in collusion with other well known pumpers. Readers should know that. I'll keep pointing out to the unsuspecting what she's doing,the record of pump pieces here is clear:
Metrics, Mortgages and Analysts
on Jun 20, 2008 about AMTD, ETFC, SCHW
S&P Upgrades E*Trade Despite Struggling Financial Sector Peers
on Jun 12, 2008 about ETFC
E*Trade's 'First In, First Out' Position: Yes, 111M Shorts Can Be Wrong
on Jun 11, 2008 about ETFC
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
"Those calling out that the mortgage and banking industry have problems are absolutely right; we hear about it every day and the 200 point drop in the DOW validiates the problems. Why would I need to write about that since it is so obvious?"
Not exactly Cindy. You forget a few weeks ago when so many banks CEOs and others were making fraudulant claims that the wrost in the banking crisis was over or how the pundits continue to understate the real estate problem. That is why the Dow rallied back over 13,100 by may. Look at it now. You do need to remind people of the banking and real estate problems because they are enormous. People have short memories, especially when the memories are bad. They tend to embrace even the most suspect optism while erasing a bad past. This is basic behavioral finance. And the failure to understand and circumvent these natural instincts is what often makes investors make poor decisions.
"The fact is, E*Trade's comments in June's conference are something that is not generally known to the investment public. Since that information indicates E*Trade will be able to maintain unique performance differences in comparison to the industry, I felt those comments needed more publicity."
Cindy how can you say this publically available information is not known to the public? Are you saying some of these diehard ETFC fans are ignorant? That would be the implication. I cannot say I would disagree with you in that case. Still, I would have to believe that even a novice investor holding many shares of a distressed company would be watching for every announcement, conference, etc. they could find.
"I have shared my "Due Diligence" in deciding that I am going to hold on to my long position in ETFC. If you don't feel the same, then sell out your position or don't bother buying the stock."
Due diligence is only helpful if it's conducted in a prudent manner. One of the most important parts of the due diligence process is risk analysis. And for you to basically say "if you don't like my 'due diligence' reporting on ETFC then just sell or don't buy it' is an attempt to shut off any critics who have recognized the fact that your "due diligence" is not as diligent as it could or should be.
Cindy, I understand your frustration. Jbmaria makes personal attacks against you on a daily basis. And many times, the tone or true intent of printed words can easily be taken more harshly by the one it has been directed to than the writer intended. I'm sure this applies to most attacks made by jbmaria. While a bit of flare here and there never hurt anyone, I think it is obvious jbmaria often takes things to an extreme perhaps with a bit of playful rather than malicious intent. While I agree with jbmaria on many points, I certainly do not agree on the manner by which he or she choses to counter your commentaries. Hopefully, jbmaria will wean himself off of the personal attacks. Maybe they could come once every 20 posts instead of 20 attacks per post lol.
Prescient11, you just don't get it do you. Even if ETFC went to $20, you still would be wrong. The risk is way too high at this point and there are many much better investment opportunities with much lower risk and equal if not better potential returns. How many times do I have to say that? If you people think ETFC in the best of scenarios will rise back to its previous highs anytime in the next few years, you will be sadly disappointed. Even if the company makes it through this mess it will be faced with massive dilution. What that means in general is ETFC would have to be doing at least twice as good (assuming a conservative 50% dilution) as it was a years ago when the market soared. And that is not going to happen for a long time if ever.
I have no position in ETFC so I have no bias. I'd love a compelling reason to go long or short ETFC but I do not have such a resaon at this point. However, I would say that if I had to take a position it would be short based on the financial industry in general. I continue to take short positions in many of the banks (LEH, BAC, MER, BSC, etc.). You had better believe most of the banks are going considerably lower, including C ($15-$16) BAC ($18-22) and others. MER could have MAJOR problems. It could be cut in half at these already low levels.
Explain what you mean by risk factors and I'll let you know if I agree or disagree. I vehemently disagree about the "massive dilution" you reference, by the way.
I'm hoping to hit up Cancun Mx If I make it. If not....back to OT at my work lol.. PEACE everyone...shorts and longs!!!!
On 3-2-08,the day he's named CEO,
1.8 million shares land in his account and no one mentions it as compensation???
Doesn't look like they're options but maybe they're restricted?
Wondering if I missed a filing detailing this?
biz.yahoo.com/t/28/382...
"➤ ETFC is in the midst of restructuring its opera-
tions and balance sheet to focus on its retail
clients and reduce its exposure to consumer
lending and securities investments. While we
view the decision to refocus on its core compe-
tencies as prudent, we believe significant dam-
age to its balance sheet and future earnings
power has already taken place. While customer
and asset defections have likely stabilized, we
expect higher loan loss provisions, further im-
pairments, and dilution from its capital infusion
to constrain results for the foreseeable future.
➤ Despite the problems with its mortgage hold-
ings and security investments, ETFC continues
to post relatively strong retail results, with
strong net new customer growth and daily av-
erage revenue trades (DARTs) up 12%, year to
year, in the first quarter. However, we see a
number of negative headwinds in 2008, includ-
ing continued loss provisions on its first lien
and home equity portfolio, higher debt expense
and increased customer acquisition costs.
➤ We project a loss per share of $0.49 in 2008 be-
fore a return to profitability in 2009 with EPS of
$0.16.
➤ We believe ETFC's past decision to stray from
its core direct retail customer focus will be a
drag on results for a number of quarters. While
we view the move to realign operations to fo-
cus on core retail customers as prudent, we
see the overhang from its remaining mortgage
assets and the dilutive capital infusion out-
weighing the near-term positives that we have
seen in its retail metrics. We anticipate further
write-downs in the home equity loan portfolio in
2008 and increased loan loss provisions for first
lien holdings. While we see Citadel's invest-
ment providing ETFC with much needed capital
and balance sheet stability, we view the terms
as unfavorable to existing shareholders.
➤ Risks to our opinion and target price include in-
creased price competition in the retail busi-
ness, higher interest rates, and smaller write-
downs in the remaining mortgage portfolio.
➤ We arrive at our 12-month target price of $4.00
by applying a 0.8X multiple to ETFC's 12-month
projected book value per share, a discount to
peers. We think a discount is warranted by un-
certainties surrounding ETFC's mortgage and
securities exposure and a challenging market. "
1. As a bystander, It looks like Cindy is really painting a very rosey picture as if like a Majic act of layton, ETFC will be back to business and a $20 share in no time. Infact I lost around $400 by investing in ETFC after reading her posts and in no time I sold it off. I bought it at 4.06 and sold it at 3.72.
2. JBMARIA even though looks a little bit too critical is really tearing down the half cooked DD done by Cyndy. After all those eye opening comments from him/her, I would defenitely start reading Cyndies articles with a pinge of salt. Also the comment from him/her are really solid. It would have been better if the language is toned down a little bit.
3. The track record of cyndy as mentioned in the comments is that either she publishes one article when the stock tanks or the stock tanks when she publishes one.
4. Also picturing Layton as a hero is kind of unusual. He hasn't done it yet. Let us make him a hero when he is one.
5. Please dont talk about the wallstreet analysts. They are a bunch of crooks. At minimum please dont bring them in a discussion of main streeters (S&P excused).
All in all I am not going to blindly accept Cyndys' articles any more. There will be caution when I read it. Also, Cindy should not try to shut out criticism since it is you who published the article in a public forum and you should expect some reaction to it.
I appreciate Cindy's posts, and as for all of you who disagree, I am waiting for you to post your article presenting your opposing view.
Be sure to make it as readable as what Cindy writes.
Oh, and just so you can call me a blind believer in Etrade, I am long 46,000 shares at prices from $2.40 to 3.70. I am an investor, not expecting a quick buck. I plan on holding for two or more years if necessary as I believe the reward/risk ratio in Etrade is worth it.
In summary, I stand with Cindy, and I have put my money where my mouth (or is it keyboard) is!
seekingalpha.com/artic...
......"A Final Word of Caution
Those of you looking to make easy money in the financials like E-Trade (ETFC) need to think again. The risk is too high right now. I find it amazing how so many who have taken a long position in ETFC cite the company's impressive book value as some sign of value or financial strength.Understand that book value is used in the event of liquidation of assets in bankruptcy and therefore usually has no impact for common stock holders. In addition, book values of financials are meaningless since the banks have overvalued their debt. Finally, book values typically have no way of fully accounting for the type of massive leverage the banks have built.If you were not aware of these basic facts, you really need to sit this one out, save your cash and wait for the next bull market, when nearly everyone does well.
Even Citibank (C) has considerable downside from here, as does Bank of America (BAC). Over the past year, I have made many recommendations to short the financials. Earlier in the year, my attention was focused on Lehman Brothers (LEH) and American International Group (AIG). The story on these guys is far from over but I would wait for a rally before going short again.
The next short to consider will be Merrill Lynch (MER). When MBIA (MBI) and Ambac (ABK) get another downgrade, Merrill will be in deep trouble due to their large exposure to insured mortgage debt. That said, you might be wondering why Merrill is already near a year low. It's quite simple. All that I have told you about Merrill's risks is widely known. But that does not mean it can't go lower. However, unless you are very experienced with shorting, you need to stay away from this strategy.
Will there ever be a time to pick up the financials? I doubt I will bother to pick up any of these (other than for short-term trading) even when I sense the bottom has been reached because the climb back up is going to be very slow and small. The dilution that has and will continue to occur will crush earnings for many years."
messages.finance.yahoo...
To investorms23:
"1. As a bystander, It looks like Cindy is really painting a very rosey picture as if like a Majic act of layton, ETFC will be back to business and a $20 share in no time. Infact I lost around $400 by investing in ETFC after reading her posts and in no time I sold it off. I bought it at 4.06 and sold it at 3.72. "
Congrats, you have demonstrated that you do not understand the stock market. You actually lost the $400 dollars after you sold off the stock, not before. E-trade has now twice tested the upper 4 dollar to mid 5 dollar range, I am confident that if you had just been patient you would have seen yourself at least at a break even point sometime in the future. No guarantees ever of course.
Furthermore, never once has Cindy painted a picutre that E-trade is going to be magically back to $20 dollars per share anytime soon. In fact, I don't think any intelligent investor is looking for e-trade to hit the $20 mark (of course it would be nice). A normal value investor should be looking for a 9-12$ range in the next two-three years, which would be FANTASTIC returns.
The point is this folks, Etfc is not good for people who are chasing the dream of making a fabulous profit in the next six months. If you feel/know the market is a get rich quick scheme, there are defintly better opportunities out there. But if you have money that you do not have some impending use for, and are comfortable with putting it away for two to three years and not worrying about it, E-trade MIGHT be a great spot to put it.
Riding the wave,
Zac
I do respect your opinion. But I differ from what you are saying. ETFC as a standalone company may be trying to be honest and straight, going forward. But looking at the total financial malaise in the U.S. it is a dangerous stock. What an online broker has to do with risky mortgage? Now the stock is sitting at 2.35. Even if it doubles from here, somebody who invested at 4 to 5 is not going to make any money. One of the golden rules is that you have to cut your losses at 8%. This is especially true in case of a down market. That is what I did. Now with the same money I can buy more of the same stock. Another rule is never fall in love with any stock. You can fall in love with its fundamentals. Best of luck !!!
ETFC -- Sale of Canadian Unit Generates Cash Proceeds of Aapproximately $511 Million
NEW YORK--(BUSINESS WIRE)--E*TRADE FINANCIAL Corporation (NASDAQ: ETFC - News) today announced it has entered into a definitive agreement to sell E*TRADE Canada to Scotiabank (TSX: BNS, NYSE: BNS) for $442 million in cash. E*TRADE FINANCIAL expects the combination of the sale of E*TRADE Canada and the return of related capital to generate net cash proceeds of approximately $511 million.
“We continue to make solid progress against our 2008 Turnaround Plan by monetizing non-core assets to generate capital while delivering consistent organic growth in the retail business,” said Donald H. Layton, Chairman and Chief Executive Officer, E*TRADE FINANCIAL Corporation. “This transaction generates capital for E*TRADE at a very low implied cost. Combined with the other planned non-core asset sales announced this year, we’ve generated more than $700 million in proceeds in a shareholder-friendly manner. With this transaction signed, we re-affirm that our plans to access the capital markets are focused at this time upon the previously-announced debt-for-equity swaps.”
The deal is subject to approval by all regulatory agencies and is expected to close in the third quarter, 2008.
Full Story: biz.yahoo.com/bw/08071...
True - Etrade isn't going out of business - but I doubt existing small time shareholders have any hope in this situation. You can "buy and hold" at these prices but the truth is that you will have to wait a very long time to see a decent return. This game wasn't meant for "retail" investors. The Gordon Geckos of the world have too much muscle.
siliconinvestor.advfn....
Etrade's 270,000,000 shares short position
www.investorvillage.co...