Richard Shinnick

Read This Before Buying E*Trade

Chungst,
You wrote:
When someone points out a defect in your argument, in my humble opinion, you are now obligated to verify that information yourself as opposed to attacking the critic with your comment of: "Response 1: Ok, who is the counterparty? Ambac?"

I respond:
The "defect" in my arguement pointed out by Prescient11 was that the 80% or higher LTV loans were insured-he provided a link. I checked the link and it indicates that 2.5% of the loans are insured, and 97.5% are not insured. His link was to information that I already had looked over and I did not include a note on the insurance because it is such a small part of the portfolio that it is almost irrelevant. In his comment he made it sound like it was most of the portfolio, not 2.5%. Take a look yourself and let me know what you think.

Furthermore, nobody has pointed at anything in the article that is "innacurate" information. I think Prescient's point was that the information is accurate but E*Trade has adequately dealt with it. Any way you slice or dice it, E*Trade is highly leveraged to bubble area, stated income loans written at the height of the housing bubble. That is a fact. Whether they can deal with that fact is what this discussion is all about. Moreover, a lot of investors do not even realize that they still carry this paper and assume, like Vegasjoe, that they sold it all.

Read This Before Buying E*Trade

Prescient11

Truthfully, I do not remember and it is irrelevant since I knew it would get rewritten anyway. I no longer put any thought in to titles. I trust the editors to read the article and give it an appropriate title, and they always have. Good night.

Read This Before Buying E*Trade

aajones

Hallelujah brother! Hallelujah!

Very enjoyable!

Read This Before Buying E*Trade

Prescient11
End of discussion. But, one bit off trivia for Seeking Alpha readers is in order. The Seeking Alpha editors wrote the title, I did not. They usually rewrite my original title and their title choices always seem to be much better and to the point than the ones I originally submit. The have not, however, ever edited one word of content.

Read This Before Buying E*Trade

Prescient11

Tell you what, I know of no way to "amend" an article, but I will say that my "precariously close" comment was not meant to infer any immediate threat but rather to point out that the mortgage portfolio could eventually push E*Trade in this direction-that is why it is a $5.00 stock and not a $25.00 stock. You have done a great job of making the point that they are well-capitalized and I hope everyone gets as far as your comments. I read Seeking Alpha for the articles and the comments and find the later to be just as informative.

At the present time E*Trade indicates that it is well capitalized and it has plans to improve the situation. It is making progress, no doubt. Does E*Trade truly have a handle on their mortgage losses? I don't know and neither do you because it is hard to predict how far things will deteriorate or improve. New Century Financial was a vibrant multi-billion dollar business just 1 year ago. I know the comparison is unfair, but we now know a little more about risk than we did back then. I did not make a single prediction in my article with respect to buy, sell or hold. Many articles I have read make glowing ones and unabashadly say "buy" with no discussion of risks.

So, you certainly did your DD and any long position that you have may be heavily rewarded. In fact, I sincerely hope that it is. Best of luck.

Read This Before Buying E*Trade

Chungst,

What you call "feedback" I call a discussion and I very much enjoy it. There are no winners or losers in a discussion. In fact, Prescient11 has great points and has really balanced out the discussion. I think, however, that if you write something and people critique it, that you have every right to respond. It is called taking ownership. Personally, I thoroughly enjoy reading articles where the author comes back to respond to comments. A lot of people who write comments want a response and in many cases never get one. And, yes, I will be a better author in the future based on this discussion-it is a tremendous learning experience.

Read This Before Buying E*Trade

Prescient11

By the way, the Ambac thing was a joke meant to point out that with all such insurance these days there is counterparty risk. Bad joke, irresponsible, sorry.

Read This Before Buying E*Trade

Prescient11

Thanks for the link, but I think it actually does not support yourr point that 80% or higher LTV loans are insured and that if you take them out the LTV drops significantly. According to the chart on your link, the total of such loans is only 2.5% of the portfolio. It is almost insignificant. That means that 97.5% of the home loan portfolio is NOT insured. Am I reading that wrong?

In any case, thanks for all your counterpoints and thoughtfulness. My intention was to point out risks and your intention is to show that those risks are "dealt with." It makes for a great discussion.

Read This Before Buying E*Trade

Compost and More Compost

I did not use information from other articles, I got the information from the E*Trade investor relations website. The point is that I could not find this information in other articles. Instead, where I saw mortgages mentioned, it was with respect to the paper that E*Trade sold at pennies on the dollar, it did not address the remaining mortgage exposure.

As far as the Morningstar report, it was very recent: 2-11-2008.

Read This Before Buying E*Trade

atlantis2

To be fair, the mortgage paper carried by E*Trade is generally not subprime.

Read This Before Buying E*Trade

In response to Prescient11:

Perhaps you should do a bit more research before blathering on as you do. First, know that in the first lien mortgage portfolio, Etrade has insurance on any loan where LTV is 80%.

Response 1: Ok, who is the counterparty? Ambac? Also, I assume that you know that a substantial amount of the portfolio is written below the 80% threshold and that those valuations are dropping as I suggested. So, there is still significant risk and I assume any insurance is not 100% relative to any loss.

Second, they have already addressed a direct question on how the consumer loans (boat and RV) were performing and they were doing fine -- nothing like the HELOCs which were a problem from the start -- are you suggesting they are lying.

Response 2: No, actually I suggested that they were telling the truth. I also suggested, however, that this portfolio was a surprise to me and might not perform so well in a recession? Are you suggesting that it will perform well regardless of the economic environment and poses no risk at all?

Third, the HELOC portfolio is functioning under radically conservative assumptions, I suggest you do some actual DD before you spout off.

Response 3: What is “radically conservative.” It is going bad fast, period. E*Trade is reserving for it and expects to continue increasing reserves by hundreds of millions of dollars. Are you suggesting that they are lying?

Finally, your suggestion that Etrade has just "$500 million in excess capital on the books" and thus is precariously close to bk is a joke. Are you a real author? They are $500M (and soon to be $1B) over WELL-CAPITALIZED levels, which is a far, far cry from bk. Hell, Citigroup has a better chance of bk.

Response 4
I am quoting Morningstar:
E*Trade's first priority is to avoid bankruptcy. The bank needs to maintain "well-capitalized" status in order to avoid violating covenants and regulatory problems. As of Dec. 31, E*Trade had excess capital of $418 million and expects excess capital to equal roughly $1 billion by the end of 2008. However, we believe higher loan losses could eat through the capital cushion over the next two years. If loan losses mount and the cushion starts to erode, E*Trade's well-publicized problems could panic customers and create a second massive withdrawal of deposits and brokerage assets, which could rapidly push the company to the brink of bankruptcy.

So, there is a plausible bankruptcy scenario authored by a plausible analyst.

Response 5
As for whether I am a “real” author, you can take that up with my editor.

So, thanks for your non-analysis stealth bash.

Response 6
Well, if pointing out information about E*Trade that often gets over-looked makes me a basher, then so be it. If you look over articles on this site, you will see that you already have plenty of other glowing perspectives. I just thought this information was getting over-looked.

Carry on. In the future, if you truly have some "concerns" do some DD and you may find it surprising that there are actually some answers to the "questions" you posit.

Response 7
See, if I answer my own questions, then I would be having a conversation with myself and there would be no point in putting up an article to generate discussion. That would be no fun at all.

I'm sure your 3 long shares qualify you to be a secret basher. Congrats.

Response 8
Aw shucks. A personal attack! Now I am supposed to insult you, right? I pass and sincerely would like to thank you for reading my article and taking the time to comment.

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Costco: Overpriced for Its Growth Rate

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Is Japan Subprime's Next Flashpoint?

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Costco Same Store Sales Up 7%, Beating Estimates

Long Costco, short RTH. Why not?