prescient11

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Mr. Shinnick, I will leave the discussion with this. Etrade longs have long-suffered through the lies and negligent reporting from the major media, that does nothing but quote analysts who are either lying or entirely negligent. Seeking Alpha has been one refuge for the truth, where retail investors could look for great analysis, the same with the Motley Fool for the most part. That is why I took such offense to your article. We assume that Seeking Alpha will provide the complete picture, if one is to make such sweeping statements.

I honestly do believe some clarification is in order to your conclusion. Etrade has set aside $500M, and plan to have that number over or at $1B by the end of 2008, above well-capitalized levels. This is an amazingly good capital ratio. Yes, it's true that they could still go bk presumably, but it's likely that Citigroup would get there first if the economy truly melts down to that point. Given that Etrade has already been hurt by someone yelling Fire in a crowded theater, I think it is irresponsible to say they are "precariously" close when that is obviously not the case. I would respectfully submit that that portion of your article, at least, should be revised or amended to reflect exactly what a strong capital position is in, stronger than many huge household financial names these days.

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"Compost and More Compost"???

Game, set, and match.

Read This Before Buying E*Trade

Liac, you're welcome and as I originally stated it is good to know what Etrade is really holding, as Mr. Shinnick discusses. It is the other "points" or comments I took issue with.

If you, or anyone reading this for that matter, takes anything away from this exchange know this, other than the HELOC portfolio the rest of these assets are either performing -- i.e., income producing -- or are at least break even. Time to move on and get back to basics, and that's exactly what Etrade is doing.

Read This Before Buying E*Trade

In reply to Mr. Shinnick:

Let me again preface these comments by stating that the fact that I have to provide links or research is somewhat incredible, given that it’s not my “article” and that I am not the one authoring a piece that has the potential, however unlikely, to alter someone’s investment decision. Just so your readers have the complete picture, I endeavor to provide a complete reply to your responses.

Reply 1:

Here is the link re 80% LTV insurance – page 4 of this pdf. files.shareholder.com/...

The fact that you would suggest it’s Ambac shows your complete lack of diligence here. Etrade has ABSOLUTELY NO EXPOSURE to monoline insurers – you can find that out for yourself (people who actually research the stock have already reviewed this possibility given the current monoline issues). Your own article states that avg. LTV is 69%, take out loans that are at 80% and above LTV, then watch how low that avg. drops. As an aside, I did not know that Washington, D.C. and New York were part of the
”bubble” locations, I thought they were holding up very well actually and appreciating in some areas. And finally, you ignore the fact, that from an accounting standpoint, these first lien loans that are under 80% LTV, and likely well under, Etrade will be first in line on any foreclosure. That is the biggest danger with a HELOC portfolio, since they could be wiped out with dropping valuations as a second lien. Finally, are you proposing that real estate valuations across the board will drop 20-60%, thus rendering all of these first lien mortgages worthless. I guess a nuclear war could happen as well. Only 1% of these loans are 90 days past due and the portfolio is very profitable – Fact.

Reply 2:

Aren’t we in a recession, or at least a slowdown? And you ask the question here, but 4Q ’07 was pretty bad and they stated that this portfolio is holding up fine. So what’s your point? This “problem” portfolio actually is not a problem and is performing just fine. If you’re going to label a portfolio as a problem, then yes, you should have a reason for it other than vague hypotheticals, or explain to your readers that it is performing currently, and management does not expect any problems, but x, y, z, etc. Yes, in a hypothetical depression some boats might get repo’d. Who cares. Next.

Reply 3:

Here is radically conservative. WFC, Buffet’s baby, has $1.4B reserved for a HELOC of $84B!!!! (And these are some of the worst of the worst). In contrast, Etrade has anticipated putting aside $1.5B for a HELOC portfolio of under $12B, and $1.5B of these loans are FIRST LIEN LOANS. There are many problems in this portfolio, but Etrade has been more than 700% more conservative than WFC – a conservative bank in its own right. The HELOCs are taken care of, end of story. Etrade has prepared for the absolute worst situation in that portfolio so they are not taken by surprise again and made to look bad. Never say never, but this portfolio poses almost no threat to anything.

Reply 4:

What kind of a response is that, you are quoting from Morningstar. I made a clear, simple point and you respond by copying somebody else’s point. First, I don’t care who you copy, I asked a simple question. You should know how to analyze a balance sheet and capitalization requirements before you make an inflammatory and completely unfounded statement like you did re bk. Do you even know what they’ve done over the past months? Did you know they took $3.5B in available cash to pay down FHLB borrowing. Doesn’t sound like a company in desperate need of cash now does it? Moreover, you don’t point out that this extra cash is above WELL CAPITALIZED levels, which means the best of the best. You will be hard pressed to find a better capitalized bank other than Etrade these days. Look at the majors.

Second, you are relying on an outdated Morningstar piece, I can’t believe you would respond with that. They have since revised that “analysis” and basically thrown their hands in the air stating that they don’t know what to think. If you have been following Morningstar’s “analysis” of Etrade, which you obviously have not, it is about the most atrocious coverage I have ever seen. At one point, it consisted of two women talking on a video who felt that they may have a 25% of bk, with no facts whatsoever and random conjecture about customers leaving Etrade – which is no longer happening since November – CASH LEVELS ARE COMPLETELY STABLE and Etrade is adding new accounts daily. Calling Morningstar a plausible analyst on this stock is a joke, in fact, the person in charge of this DD at Morningstar should be fired.

Reply 5:

I am hoping your editor will take it up with you for this complete lack of diligence.

Reply 6:

Your failure to do research and unjustified inflammatory comments justify the basher title. As you can see, I prefaced my original comments by agreeing with your observation that the mortgage portfolio was very big indeed. But your label of a “problem” and really ridiculous other points is what made me think you were bashing.

Reply 7:

Well, why don’t you tell me the name of your small business, and I will send an article to all of your vendors, customers and creditors, where I will posit several “concerns” and “questions” and put a percentage on the likelihood of you going bankrupt. Would you like that? Asking a question without providing an answer and positing false hypothetics is almost worse than flat-out lying. As you can see by this reply, it takes a hell of a lot longer to unwind the half-truths than just refuting a lie.

Reply 8:

It’s not a personal attack, rather an observation and my attempt to take the high road. I would like to presume that you are a stealth basher, as the alternative means that you were quite lazy, negligent and careless before authoring your piece. In the future, perhaps you should actually attempt some DD before throwing out “concerns” and “questions” that result in inflammatory “observations” regarding Etrade’s capitalization levels.

In closing, I’ll put my money with Mr. Layton’s (Chairman of the Board and MIT grad. in case you were unaware) million dollars at $4.07. And if anybody wants to know how this game is played, know this, Citigroup’s wonderful analyst continues to maintain a sell rating on Etrade stock, yet Citigroup increased their position recently in Etrade stock over 600%. In other words, retails get screwed again. Real DD is needed to help the little guy, and until your article, Seeking Alpha was a fairly reliable source of at least an unbiased opinion, let alone research that was worth a damn. I hate to see you sully their reputation.

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Let me preface these comments by stating that I agree that the mortgage portfolio, for the time, does dwarf the brokerage and you rightly point that out. However, now you need to be taken to task.

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%. 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. Third, the HELOC portfolio is functioning under radically conservative assumptions, I suggest you do some actual DD before you spout off. 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. So, thanks for your non-analysis stealth bash. 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.

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