Ricard

E*Trade Takeover Chatter: How Should an Investor Respond?

As someone holding LEAPs at 2.5, I am a bit apprehensive about a merger at this time. If it is forced, I'll need a price above 2.90 to break even on the calls. Given the 1.65 price of the stock right now, I don't see that happening anytime soon.

I'd much rather ETFC organically grow its way out of this mess, and get to its justifiable market price around $3 - $3.5 THEN have this takeover happen. A 20% premium above that would place it around $3.5 - $4.25.

TD Ameritrade-E*Trade Deal Needs to Happen

I doubt this will happen anytime soon.

AMTD has cold feet due to ETFC's 'problems'. What's interesting is that once those problems go away, ETFC's market cap will probably exceed AMTD's cash hoard. If they buy then...well, ETFC shareholders (like myself) will certainly be amicable to the 'right price'.

Also, including the convertibles, ETFC's current market cap is around $4.5bn.

E*Trade: Potential Ameritrade Merger Makes Sense for Both Companies

Fundamentally ETFC is doing all the right things. Citadel has not sold additional shares since Oct 12. Short position is increasing (although still less than 5% of float), thus pressuring the price.

I've already taken this opportunity to DCA down. Time to just wait and see...

E*Trade: A Solid, Deep Value Stock

3Q update:

online.wsj.com/article...

online.wsj.com/article...

No real surprises - 'beat expectations' of course. Slightly disappointed that revenues decreased ever so slightly. Would like to know exactly the nature of the 900m charge they took and how it related to the debt exchange.

E*Trade: Very Undervalued

LOL, I wonder if I'm going to miss all the work I am doing for you...probably not.

Read this 8-K:

yahoo.brand.edgar-onli...

The 'money paragraph' to settle your concerns:

"The Debentures will (i) have a ten year maturity; (ii) not bear interest; and (iii) be convertible into shares of common stock at any time at the election of the holder into a number of shares equal to the quotient of (x) the principal amount of Debentures of such class to be converted and (y) the conversion price applicable to such Debentures immediately prior to conversion; provided that no holder may convert Debentures to the extent such conversion would result in either (A) such holder beneficially owning in excess of 9.9% of our outstanding common stock (which limitations may be waived by such holder), or (B) such holder owning in excess of 24.9% of our outstanding common stock, under the OTS control rules, which limitations may be amended or waived, as applicable, upon the later of (a) one year notice to the Company and (b) receipt of any necessary regulatory approvals; (iv) contain customary anti-dilution provisions; and (v) will have covenants and events of default substantially similar to those of the 2017 Notes."

Read this paragraph carefully until you get it. It defines the exact process as to how to convert the debt into equity, and at what ratio.

I still recommend you read the book I linked for you. PR announcements are probably the last place I look for any meaningful information on a company.

Principle amount is $1000, you know the conversion price, and OTS has waived the 24.9% requirement.

I think we are all now on the same page.

On Oct 26 10:30 AM User 488509 wrote:

E*Trade: Very Undervalued

To User 488509:

"Some questions for you.
Why call it a "price' if no money will change hands , why not a conversion "ratio"?
If you need to establish a ratio , why not do it with the exchange , i. e., exchange 1034 notes for 1000 debentures?"

The conversion ratio is implied. The 'price' allows for investors to more easily determine whether or not the debt can be profitably converted - it would not be as intuitive to say that a $1000 bond has a 1000-to-1 conversion ratio.

To Redbeard:

LOL, I'll buy THAT for a dollar...:)

On Oct 26 12:40 PM redbeard20000 wrote:

> As for whether they need to raise additional capital, I don't believe
> they do. If it turns out they do need to, it will probably be small,
> a few hundred million dollars.
>
> My reasoning for this is, they generate substantial income on a pre-provision
> basis. Between 200-250 million per quarter (actually 250-300 million
> post debt for equity swap). Delinquency trends are improving and
> their total loan portfolio is declining rapidly, over 5% per quarter.
> They also have 1.2 Billion in loan loss provisions and ~500 mil in
> cash at the parent level that they could inject into the back. So
> they already have quite a cushion against future losses. Considering
> management believes write offs peaked last quarter at 384 million
> and loan provisions peaked before that, they are rapidly approaching
> the point where earnings from the brokerage and bank will make up
> for the losses in the loan portfolio. In fact, the bank is projected
> to be a net generator of capital this quarter, (they only burned
> 28 million in capital last quarter). As long as the bank generates
> excess captial, there shouldn't be a need to raise additional equity.

E*Trade: Very Undervalued

Read your comment stream. Here's a question for you:

What would it take for their HELOC portfolio to surprise on the upside?


On Oct 26 12:22 AM Al the pal wrote:

> ETFC is a penny stock fools dream. Lots of hype with horrible financials.
> The company is and has been operating in the red with no end in sight
> because of their huge and horrible HELOC problem. Short this stock
> and any fools rally.

E*Trade: Very Undervalued

I'm going to try a different approach and compliment you.

You're obviously intelligent and tenacious. Good for you.

Unfortunately, even intelligent and tenacious people make mistakes, and more unfortunate still, getting them to realize they've made one is a perilous and, at times, totally foolhardy exercise.

One more time - the cost of the convertible conversion into equity is baked into the cost of the original spring lien notes (remember, spring lien notes were swapped 1:1 for the convertibles - re-read your PR statement, along with the book and example I cited for you). There is no additional conversion cost.


"We'll know Tuesday which of us is misreading the terms of exchange and conversion."

No, we already know...YOU'LL know by Tuesday, unless you continue to cling to unsubstantiated beliefs.

"BTW- if ETFC isn't collecting the $1.034 per debenture conversion , that would almost guarantee a new , dilutive offering very, very soon, maybe at the CC."

The running theme in our conversation - back this claim up. I do not see how a $1.7bn infusion in additional equity would require even further dilution.

Good day.


On Oct 25 08:51 PM User 488509 wrote:

E*Trade: Very Undervalued

I think it is safe to assume that a hedge fund like Griffin's never intended to own a controlling stake in a banking institution like ETFC. The fact that he's reduced his holdings to comply with regulators' demands is the key fact here, not his total reduction in holdings. It is not far-fetched to think that Citadel planned this chain of events (initial debt infusion to avoid regulatory scrutiny, then swap to convertibles and profit off conversion), or at least foresaw it and incorporated it into their strategy entering ETFC.

So, how does he profit? He collects two years of exceptional rates (12.5%), converts this debt dollar-for-dollar into attractively priced convertibles (i.e., loses no money off a slide in credit ratings and possible devaluation on the debt), and profits on the equity sale. That, and the HFT angle. Griffin made a bet that ETFC was within his capabilities to handle, and proved to be right.

What that means is that the key question is whether or not Citadel will hold onto its remaining stake, now that it is compliant with regulator demands (under 33% total ownership). If it does, it speaks to a bullish outlook on the part of Citadel. They *could* take profits now, but instead they choose to hold on for bigger opportunities later. That seems to be what October has translated to. Prior selling is irrelevant given regulatory restraints. You need to re-read the links that several members have posted for your benefit.

Your arguments take too little into consideration. That, and you were previously operating under the assumption that Citadel was taking massive losses on the conversion. If there was no regulatory presence, and if Citadel was taking massive losses to exit, I'd probably agree with you, but neither of your assumptions are true.


On Oct 24 12:50 PM User 488509 wrote:

> Rcard,you're still ignoring Griffin's sale on 9-15 of approx. $850
> in ETFC notes which means his overall holdings in ETFC have shrunk
> from $2.5B in April to under $1B as of last week.
> That's 60%!!!!!
> Not the sign of confidence or support from ETFC's largest investor.
>

E*Trade: Very Undervalued

I think you're being unduly harsh. I like your conjecture that the stock sales have been precursors to KG's own sales - there's a lot of truth in that statement. It explains the ATM sale even though ETFC was not in need of the capital.

Still, looking at the regulatory trail, seems that KG has made concessions to stay above 25% in ETFC, and probably needs to stay under 33% to avoid the 'eye' in Washington. He's right there in that sweet spot. Selling has slowed to a crawl, and ETFC is 'over-capitalized'.

KG also has his own problems at HQ, so there are more angles than just a pump-and-dump scheme going on.


On Oct 23 10:48 AM skess11 wrote:

> I'm not saying who is or might be a planted story but some may be.
> We know that happens. What I am saying is that when the debt exchange
> happened I don't think people thought that Citadel would be unwinding
> in an unruly manner just 2 months later. E floated a half billion
> shares and the market absorbed that. Then Citadel dumped hundreds
> of millions of shares.
>
> All I'm saying is that KG pulls the strings. He gets the cookies.
> Any cooklies anyone else gets are solely by the grace of KG. Regardless
> of who may or not be his rumor plant, it all functions to the benefit
> of KG. That's all. Market forces will only play in when Kenny doesn't
> want to screw with them.
>
> What would the stock price be if KG didn't step in and flood the
> market on the hype?

E*Trade: A Solid, Deep Value Stock

Your arguments are unfounded. Most of the LTD is in the form of convertibles, meaning that either you see a dilution problem or a leverage concern, not both. Current interest expenses (after debt conversion) are about $40m per quarter - reduce the loan provisions to around $100m per quarter, and you get about 4-5x interest expense in operating income. Not stellar, but not at all bad either. If business picks up, it may turn out to be quite good. Its franchise is golden, so there's every reason to think it may pick up.

We all know why equity has declined - the point is to ask whether or not it will decline significantly further before a recovery takes hold.


On Oct 23 08:28 AM Anthony Alfidi wrote:

> Calling ETFC a speculative play is absolutely correct. Have you
> noticed their long term debt load? Net income (which has been negative
> for two years) would have to suddenly turn positive, rise by several
> multiples, and stay there for a decade to pay off that debt. Shareholder
> equity has declined for three years straight. ETFC is a penny stock
> for very good reasons.

E*Trade: A Solid, Deep Value Stock

You've obviously been following this stock a lot longer than I have. It will probably take me a full quarter to be fully comfortable with the finer details. The broad strokes were enough to tell me that there was something odd about the current valuation of this company, enough for a nice speculative plunge.

Next quarter, I'm basically looking at this:
investor.etrade.com/re...

If it hits these numbers, I'll be very satisfied with forward progress. Looking/hoping for a pleasant surprise in charge-offs.

Cheers, thanks for your POV.

On Oct 22 08:59 PM redbeard20000 wrote:

E*Trade: A Solid, Deep Value Stock

+1

I'm still annoyed, though. I was hoping this discussion could stay at a more analytical level. My aim in posting articles like this was to flesh out the trade.

I just hope (s)he takes my advice seriously. For his/her sake, at least.


On Oct 22 08:14 PM redbeard20000 wrote:

> Can't wait til he comes back and posts that we're STILL wrong. I've
> passed being annoyed and am now humored by this.

E*Trade: A Solid, Deep Value Stock

Jesus...really, read this book:
www.amazon.com/How-Buy...

And look at this example:
www.calamos.com/Conver...

There IS not cost. The bond is 'converted' to stock; as long as the price of the stock is above $1.0340, it can be profitably sold on the market upon conversion.

I do not read PR announcements expecting them to redefine the definition of a convertible bond.

I highly recommend that you postpone your decision to buy or short this stock indefinitely, until you get more education on how to invest.


On Oct 22 07:46 PM User 488509 wrote:

> Quite simply you just ignored the $1.034 cost to convert the debenture
> to a share.
> Read the damn PR , it's clear as a bell.

E*Trade: A Solid, Deep Value Stock

1) It's gibberish to you because you don't know what you're talking about. Yiddish sounds like gibberish to me because I don't speak it. You need to realize when your knowledge base is inadequate.

2) Good on you for taking time to make an educated decision. Good luck, and I hope you make one that you are eventually comfortable with.

3) You have an opinion, I have an opinion. The point is not who can insult who more, but who can substantiate their opinion with proper analysis of the facts. You have made me more comfortable with my position, although slightly more irate in general.

4) KG has publicly stated that his ETFC transaction has been overall profitable - that considering his fund bombed in 2008.
www.reuters.com/articl...

Again, get your facts straight. Post links. Stop with the excessive guesswork and rabid insults.

5) You have been mis-characterizing MY intent since posting on this forum. And now you demand respect? Think before you speak. For your sake, I'm going to politely ask that you discontinue posting on this forum. You're making a fool of yourself.


On Oct 22 05:48 PM User 488509 wrote:

> You two can tap dance and double talk all you want, you're still
> wrong.The language of the PR is quite clear unlike Ricard's gibberish.
>
> Let's just wait and see if the conversion cash shows up in the 10k.
>
>
> And please stop mis-characterizing what I'm saying and my intent
> , I'm just trying to get the story right before buying or shorting
> or just giving up on it. This story is so distorted by amateurs and
> pros alike it's amazing.Some of the beat writers missed the note
> sale on 9-15 entirely.
> No denying ETFC was DEAD without the exchange and share sales.<br/>But
> it wasn't a bonanza for KG nor the shareholders who got diluted beyond
> recognition.
> If the dilution is over and the loans are really improving you could
> possibly make a buy case but neither concept is close to certain
> as I see it.