ezmaass1

An Ameritrade-E*Trade Merger? Not as Crazy as It Sounds

This is one more in a long line of buyout rumors for E*Trade. I won't debate the same old arguments here, but I'll say this... if E*Trade is to be bought out, the offer will likely be higher than $5/share or no one will go for it. Don Layton put $1M of his own money into E*Trade at $4 and change. Most of his compensation is tied to stock and the PPS.

If someone offered me $5/share for E*Trade tomorrow, I'd say HELL NO. It would still be a decent profit for me, but I ultimately think it's worth a lot more if you can hold on for a year or two more. If you start talking about $7 - $10, now you have my full and undivided attention. However, I also think that's an unrealistic expectation since the PURCHASING company would be flamed by THEIR stockholders for paying multiple times the market price for E*Trade without a clear resolution to the HELOC portfolio.

If the government can help solve that problem with remaining HELOCs without major dilution... then we may just see a solution brewing that includes a merger or buyout between E*Trade and AMTD or SCHW. Until then, E*Trade will go-it-alone!

E*Trade's 'First In, First Out' Position: Yes, 111M Shorts Can Be Wrong

4woodenboats has an excellent point.

DO notice that nobody here seems to be attacking the "boat-load" (no pun intended, 4woodenboats) of facts she included here. Whether she got them from Yahoo posters or elsewhere, who cares?? For those people attacking her for getting facts from Yahoo posters, how ridiculous are you? WHY do you think forums like Yahoo exist? Ahhh... to share facts with one another. Cindy has taken it upon herself to compile it all and write up an article. At most, a few nods or references to the Yahoo posters is in order, but it's certainly not a sinful thing. Do you honestly believe other writers are devining their own facts or on the road doing their own research? HA!

The cake must go to "Etrade Pumper Buster" for the biggest child on the board, though. Your letter to SeekingAlpha is hysterical -- reminds me of an elementary school child writing a letter to Santa Claus. An awkward and poorly written "complaint" whining about Cindy writing too many positive pieces on E*Trade while there aren't enough others covering it??? Please, give me a break.

Look -- if you're a skeptic, don't invest. Or short. It's that simple. The author isn't asking for your sympathy. She isn't even asking you to invest. She's stating facts -- and LOTS of them. That's a heck of a lot more than you get from some of these posters with opinion-based arguments and doom-and-gloom propaganda, such as "what happens if Citibank goes belly-up." Zero facts -- just scare tactics. How did you guys ever make it through college?? Or did you not? How did you cite your references to support data in your arguments?? Or, again, did you not?

I'm personally a believer in E*Trade -- for all of the reasons Cindy has listed and more. But I do acknowledge the risks involved, and I don't see anyone saying it's risk-free here... just a potentially great investment. Since when did that become a crime?

Citadel Infuses E*Trade with Strong, Experienced Management

ETFC certainly is a volatile one. While I don't believe it's going to go bankrupt anymore, it's also hard to speculate on how long it will take to recover fully.

If everything I've read is sort-of averaged-out, the general sentiment I'm getting from articles I've recently read reviewing ETFC is that interest is definitely growing. The company has little in the way of downside and the big write-offs may well be behind them.

What's more interesting to me is the support for this company from the people who use their services. It's almost a weird kind of cult-like thing! I guess I can understand why to an extent because I know first-hand how great their platform is... quick, excellent tools, great service, banking all in one place, etc. It's really a pretty aweseome thing. It seems that most people tend to agree too. If you look at the CUSTOMER feedback you see that these guys are die-hard... very strange band-of-brothers mentality around this company that you don't see elsewhere. Just look at some of the sites that have recently popped up like supportetrade.com, or the Yahoo, Google, and Microsoft forums where people regularly chat about this stock. The people are die-hard!

Anyway I think ETFC is probably a fairly decent investment at this point. It looks like there could potentially be some crazy upward activity as loans begin coming back into check and especially when this company announces a profit. From what I've read it looks like a profit in the third quarter is going to be most likely. I expect the stock will be considerably higher than $4 when that happens!

Comparative Price Shopping: Selected Banking, Mortgage and Brokerage Stocks

Hey Pres/Cindy -- what, no credit for the statements about Citi increasing their position 606% in Q4? I posted that in response to Cindy's last article on the 18th! :)

seekingalpha.com/artic...

Anyway, nice wrap-up here, Cindy. We need to see this stuff in print to make sure it sets in with the thick-headed crowd! To those of you saying ETFC would be trading higher "if it was worth it" -- did you just start investing yesterday?? Hahaha. Stocks don't "immediately" bounce to the price they're worth, otherwise there would never be a such thing as getting a bargain!! Values like this are found in stocks where the "sheep" are still following the shepherd's trail long after the shepherd has left them!! If you're not on the bleeding edge of recognizing a turn-around, you'll likely miss the opportunity, or the MEAT of it.

ETFC's problems are cleaning up. They're not done with, and until the general market begins to turn around, we may end up being a puppet of hedge funds. I have a feeling, though, that ETFC will hit positive earnings and start turning around a good 1 or 2 quarters before the others. That assumption is based upon their progress to date with selling off non-core assets, reducing overhead expenses (such as those pesky jets!), and the positive news we got this part Q about slowing delinquincies (40%+ reduction!). While ETFC's BOD mentioned that it's too soon to consider it a trend, it's a dramatic decrease that may be tied to the heavy federal lending rate cuts we saw earlier this year. I'm expecting they post a profit in Q2 or Q3 at the latest, with Q2 being a stretch goal but not completely unreasonable.

Their brokerage is in tip-top shape and getting better every day. Moglia was seen on CNBC arguably defending ETFC's platform against targeted attacks/questions. Why would he do that? Hmm... hopes of a buy-out in the future? You do need to watch what you say if that's your intention! He mentioned that the defections are over now, as well. Don't forget Newton's 3rd law! We should see some of those rebounding now, and I'm sure AMTD knows it. I'm sure Moglia was priming the analysts not to expect the attrition to continue in AMTD's favor.

There's been so much arguing on this topic, though. I'm almost exhausted speaking about it... and for what? To convince other people to get in while the "gettin' is good"? Do your homework, place your bets. This is a 6 - 24 month investment (depending on how much you want to hold out for).

You can lead a horse to water...

E*Trade: Primed To Turn Around?

Voice of Reason,

Naked Short Selling isn't legal; however, it might as well be since the SEC has done NOTHING (or very little) to enforce the law here. They also originally grandfathered in several companies (hedgies) with naked short positions. The fear is that if you pulled the plug, the market might fall apart. Some researchers have hypothesized that there are enough naked short shares out there to cause some major fundamental problems if you suddenly reversed course. Check out the site businessjive.com for more info and a great presentation on the issue.

As for shorting, I agree. It's more like gambling than investing -- you're taking a "bet" rather than putting money into something to see it grow. Oh well.

E*Trade: Primed To Turn Around?

Option Watcher,

As I said prior, if you eye is simply on a 10 cent difference in earnings for the quarter, your focus is on the side show and not the main event! The EPS estimate was a blatant GUESSTIMATE on behalf of the analysts in the first place. No one knew, 3 months in advance, in this climate what would happen to the HELOC and HE loans. Coming from $3.98/share to $0.20/share, that's a HUGE improvement in EPS.

Your whole fear-mongering of "the worst is yet to come" isn't based in facts. Speak numbers to back your claims. E*Trade showed that delinquincies were DOWN (yes, DOWN!) over 40% this quarter. So, how does that metric support your claim that the mortgages are getting worse and not better? Have you forgotten that the fed reduced rates SIGNIFICANTLY in the last quarter allowing a lot of people to refinance and thus afford their mortgages and loans?

As the BOD said, one quarter is hardly a trend, a 40%+ reduction in delinquincies is something to be happy about. The company doesn't need more assets to sell off -- they're selling off just enough to help raise capital to cover expected losses. They're pricing in $1.5B worth of losses! That's a significant portion of their total portfolio -- anywhere from 5% of the total loans to 12.5% of HELOC (more risky) loans. I doubt we'll be seeing those levels, but even if we do, we're prepared for it!

I think the gloom and doom is getting old here.

E*Trade: Primed To Turn Around?

Perspective,

I'll admit, I don't know much about thinkorswim. I can't say I get their name much, though -- sink or swim usually implies failing or succeeding, but I consider thinking AND swimmig both to be one in the same. Maybe I'm really hard-headed at 6am here, so I could be missing something!

Anyway, I don't doubt that someone will eventually create a better widget. That's the game, isn't it? The software, like all other software in the enterprise market, eventually becomes commodity. So, I don't think we can simply judge a company on how well their software works. You can constantly keep one-uping each other on this -- you see car manufacturers doing this every year. But the real value is in the rest of the company image, their reputation, their customer service, their availability, scalability, customer satisfaction rates, marketing, etc.

So, if you want to compare the two, you really need to do a complete analysis. Like I said, I'm the first to admit I don't know anything about thinkorswim -- and I'm sure MOST people don't since it's not a household name. But perhaps they'll be an acquisition target for one of the three big OLBs (ETFC, AMTD, or SCHW).

E*Trade: Primed To Turn Around?

Wez,

So, you're claim is that the ETFC management is boldly lying to your face and all of the analysts? Okay, that's fair. YES, I have seen management do this before. However, one this is dramatically different here than where I've seen that done before and pulled off -- this isn't a speculative company who is claiming to have a "mind blowing" product ready "any day now." These situations are usually the ones where the bottom falls out on all of the spec investors.

ETFC isn't a speculative company. They have real products, PROVEN products, considered "best of breed" in the industry. They've fallen on hard times, and those hard times can be easily quantified and measured. So, while you don't have to believe QUALITATIVE statements by management, you have no choice but to beleive the actual results -- $3.98/share loss in Q4 to $0.20/share loss in Q1 tells me that, yes, things ARE turning around.

You can look at the delinquincy rates, look at the credit scores, measure the DARTs, etc. These are all metrics -- they're not "taking the word of management" by any means. If you crunch the numbers, you come up with a VERY compelling reason to believe ETFC is heavily under-valued and heading for a strong turn-around. I'm simply using management's statements (their own words) to describe what the hard facts, the MATH, shows us.

So you started to think about the competition and other companies that aren't "hurting" and thought they'd be better buys?? Hmm.. interesting tactics you have there. Ever hear of a man named Warren? Well, this fella made quite a bit of money buying the "beaten but not broken" companies with high quality reputations and great products. It's a formula that has stood the test of time and made the guy a billionaire. Now, while it's not going to work all the time, if you look at the tell tale indicators of where it HAS worked and you compare those to ETFC, you get quite a few "hits." I'm not going to do your DD for you, but mine shows a fairly compelling value investment opportunity here that SCHW, AMTD, and even GOOG are probably not going to give you in 12 - 24 months.

Finally, my statement about the 10c difference on earnings isn't only my opinion -- did you listen to the CC? Did you hear ONE single analyst comment or ask a question about the quarter's earnings as compared to "prediction"?? NO! Everyone new there would be a loss, but when you're coming from a multi-BILLION dollar loss the quarter before down to a loss under 100M, that's a substantial improvement. It's like throwing a dart at a dart-board in the dark. No one cares that it wasn't bullseye - they were concerned that it even hit the board! The real future for this stock is whether they become profitable again -- which looks to be coming soon. That's what the analysts wanted to hear. Notice how all of their questions were focused around dilutive capital market transactions, profitability for the future, etc.

E*Trade: Primed To Turn Around?

Curious Cat,

Thanks for the real-life testimonial. Yes, ETFC has said many times that their customers FICO scores are some of the best, much over 700. I'm not an expert on their lending practices, but your story seems in line with many others. Outside of their sub-prime loans (now all gone!), their core lending practices will prove to be a saving grace here. An analyst (can't recall which firm) on this quarters CC stated that ETFC had a trend unlike the other banks they're seeing at the moment and likely due to the quality of the customer requirements for their loan portfolio.

E*Trade: Primed To Turn Around?

Jim,

Your points are all valid. I agree with you about the "vacuum" comments in the Fortune article. I, too, was stunned that these guys would be surprised by the power of the right rumors/news combined with a ripe climate.

I think we can agree that the previous BOD leaders had some major shortcomings. I can't hold them free of accountability either, and I agree that they certainly laid the land for Bhatia to harvest. It's important to combine the results of Bhatia's statements with the previous conditions you described to get the full picture. He's certainly not fully to blame for 11/12, but perhaps (more fairly) acted as a major catalyst for the down-turn.

In any case, I don't want to cry over spilled milk. In reality this has created a great buying opportunity for a good company at an undervalued price -- just my opinion, and with assumptions that the turn-around continues as planned. Thanks for the insightful posts, Jim -- good links showing views outside of Bhatia around the same time. Here's to hoping for the best!!

E*Trade: Primed To Turn Around?

Jim,

Good comments. I agree that ETFC didn't break because of November 12th -- it was broken well before.

However, what we DO need to agree upon (and this is examined closely in the recent Fortune article "The Day $2B Walked Out the Door", I believe) is that Bhatia's comments were irresponsible and dramatic. He claimed that the company had a 15% chance of bankruptcy, and to this day there hasn't ever been a decent backing of that quantitative figure with calculations showing any truth or responsibility in that statement.

In fact, if you read the Fortune article, Lillien is interviewed there and speaks of his surprise about the statements. In his words, the company was seeing deteriorating effects of the mortgages, but it wasn't nearly what Bhatia was portraying. $2B in cash was pulled from E*Trade bank the morning of Monday the 12th. The following days the pulls got bigger and bigger as Bhatia's article created a self-fulfilling prophecy. While Lillien admits the loans were in no great shape, they were hardly to the point of creating a liquidity problem in the bank.

However, after Bhatia's scare, within only a few weeks $30B+ in cash was pulled from the bank on fear. What do you think happens at that point? Surprise! There's a liquidity problem, and ETFC is forced to seek out a deal from Citadel for pennies on the dollar for subprime loans. ETFC could have handled the write-offs as they came rolling in on those subprimes, and you can rest assured that the losses weren't going to be 60% of the portfolio or more -- equal to what ETFC needed to give up in order to keep liquidity going after the run on the bank.

So, you're proposing it was a chicken-and-the-egg scenario, but it wasn't. By Lilliens admission and by analysis of the balance sheet prior, there was a problem. But the problem was in no way the size and scope of what was created after Bhatia screamed Bankruptcy with nothing to back it. Recalculate the losses for Q4 without the equity swap with Citadel and factor in the bank not lossing $30B+ in customer assets... it'll tell a very different story. Most of the Q4 ($3.98/share) loss came from the deal with Citadel, which was ONLY required after the bank started lossing money FAST from Bhatia's run.

Meanwhile, back at Citigroup, they were preparing for the first of multi-billion dollar losses and the need for an outside investor to step in and secure more capital. Citigroup wrote off $10B only to be followed this quarter by another $5B. Likewise, as their analyst was screaming FIRE in ETFC's theater, Citigroup increased their holdings of ETFC stock some 606%! Now, I don't have on my tinfoil hat here, but this sounds a bit fishy to me. Citigroup not taking their OWN analyst's advice?? If ETFC was TRULY going BK and had such dire problems as described by Bhatia, why would the troubled Citigroup invest in ETFC? No less, why would they increase their position over 600%?!?! Hmm. Is there a SLIGHT chance, perhaps, that they didn't agree with Bhatia's statements and they knew that ETFC's big stock price collapse from $8.59 to $3.55 in one day was unfounded? Sure sounds like it. But again, no tinfoil hat here.

So, yes there is a turn-around under way here, and it's a turn-around from PRIOR to November 12th. But, unfortunately, most of the damage control and emergency measures taken are directly a symptom of November 12, 2007. $30B+ in a few weeks time is a lot of money to lose!

The HELOCs and HE loans are performing okay. Delinquincies are down 40%+ over last quarter. Their cushion is building up for loss reserves. The clients are stabalizing and seeing growth again -- in net accounts and assets. So, there's no other way to characterize that -- if you graphed it out, it would be showing a clear turn of direction... a TURNAROUND!

They clearly have some issues left to deal with, but the media has had a field-day with this company over the past 6 months. It's quite an unfortunate event for our whole country, actually. It's clear to me that there are very few "thinkers" and many followers in the news/media. There were leaches all over the ETFC demise stories -- writers, reporters, "analysts" with no facts, incorrect facts, and sometimes purely sensationalized BS... all so they can have a headline "disaster" story to tell while everyone is caught up in the "subprime crisis!" "Ooooo... spooky!! SCARY!!" Please. Yes, there is a problem, but it's embarassing how few agencies and analysts do their job at being agnostic, objective, and responsible in reporting on the FACTS. "15% chance of bankruptcy" was a sensationalized piece of drama befitting of Hollywood not Wall Street.

E*Trade: Primed To Turn Around?

Wez,

You can't complain that you're getting your head chewed off for simply suggesting people post the negatives along with the positives. Do a google search on every article written about ETFC for the last 6 months and you'll get your negative point of view. Have you criticized them for only posting the negative? It's time for a different point of view, and just because it's a healthy/happy one doesn't mean it's full of fluff, made of candy, and painted rosy for no reason.

The people posting here are some of the most "seasoned" investors (at least some of them I know from the Yahoo Finance board) in ETFC around. They've lived and died by doing their homework on this stock. I'd count myself in with them as I have a sizeable chunk of money riding on this company.

You should expect to be flamed if you request MORE negative opinions on a stock that's been already HAMMERED to death for half a year with negativity. You should expect to be flamed if you ask questions about where the money is going to come from and suggest dilution -- you obviously didn't listen to the CC or do your homework yet. The BOD answered this question in the most obvious and clear fashion possible -- non-core asset sales and cost-cutting. They clarified this 3 times or more during the call. If you HAVE listened to the call and are still asking that question, then you're simply implying that they're either lying or don't have their heads on straight. Feel free to that opinion, but it's a 6-month old opinion that keeps get proved more wrong each day. Don't get upset that no one here wants to discuss it any longer -- it's been beaten to DEATH on the forums for ETFC and the emperical evidence is strongly suggesting otherwise (reference Q1 results).

Don't complain about getting flamed for suggesting the the HELOCs and HE loans are worse than expected. The BOD addressed this during the call, too. Delinquincies on such loans dropped over 40 percent since last Q. The BOD said that this was by no means a trend but a very positive sign, although they're still continuing to build a cushion at the same rate to protect against write-offs. No one is claiming the worst is over, but the good signs DESERVE acknowledgement after the last 6 grueling months.

Do you honestly believe the EPS was the center stage for the quarter?? If so, you should pack up your money and take it to a mutual fund because you're in the wrong place and individual stock investing isn't for you. A 10 cent difference in loss was trivial. ETFC could have BEAT earnings (let's say by selling off even more assets) and went down the toilet if the rest of the CC didn't prove that the turn-around plan was working and the future was bright. The EPS was, by derived admission of the analysts, a crap-shoot at best since they had little idea how the HELOC/HE loans would be performing in 3 months when they made those predictions... or what assets would be sold at what price in this market, etc. So, again, don't be surprised if you get flamed for saying how the EPS was a "big disappointment."

If you're serious about investing in ETFC, I would recommend you start digging deeper -- much deeper. It's not a sure bet, but my personal opinion after doing much homework is that it's a GOOD bet. You can't judge that by looking at the share price alone, and any seasoned value investor would tell you the same -- after all, if everyone recognized a good thing, the share price would be high and you wouldn't have a value, now would you?

E*Trade: Primed To Turn Around?

Wez:

Let's speak in facts here, please. "Planning on a dilutive share offering to raise money?" Please share your facts and back them with references. That's exactly contradictory to what Layton and the BOD said on the CC. He said there would be NO NEED for a dilutive capital raise, and that the company saw more than enough money to be raised from non-core asset sales and cost-cutting measures. This was repeated 3 or more times during the call for the thick-headed analysts who insisted on rephrasing the question multiple times.

As for focusing on the good or bad, read the articles in the last 6 months. Since Bhatia made his extremely irresponsible remarks back in November, ETFC has sunk -- HARD. As Cindy points out here, and the same was recently stated in the Fortune article about the day "$2B walked out the door", ETFC has been HAMMERED by the press with one negative article after another. CNBC and many others have taken every opportunity to bash E*Trade with little more than speculative fear-mongering. So you're complaining that there's finally some reality here and Cindy, like a few other brave writers, are offering up the GOOD points on the company?

The public argument has been overwhelmingly AGAINST E*Trade for 6 months now. It's time to see the tides turn. Citibank is shown to have increased their position 606% in ETFC during Q4 while their analyst was throwing around irresponsible quantitative figures (15% chance of bankruptcy) with nothing to back it. Does that sound honest to you? It's about time these analysts and media agents with an agenda are held to some standard of responsibility for their words.

E*Trade will prosper, and the same "followers" that have been part of the lynch-mob for the last 6 months will be late to the party in singing its praises. They have no integrity and little insight to offer. Those who have spent the time to crunch the numbers, analyze the company's position, and honestly even USE their products/platform, are much more "in the know" than most of the two-bit reporting I've seen providing "coverage" of ETFC as of late.

The joke is on them, honestly, as it will be way too late to purchase shares at $4 once the general "heard" has come to a positive consensus on the company! :)

E*Trade: Primed To Turn Around?

Layton and BOD did a superior job on the CC for Q1. The message was clear:

- We've "turned the corner." The HELOC and loans are now dramatically decreasing in delinquincy rates. This was one of the core targets for shorts/bears on ETFC.

- The BOD repeatedly stated that there would be only "Shareholder Friendly" measures taken to raise capital, and the company felt that it was more than covered via means such as non-core asset sales and cost-cutting measures. This, too, puts to bed the rumor of a Capital Markets transaction that dilutes shareholder value! This can't be over-stated since it was one of the core arguments against ETFC for the past 3 months.

- Restated "profitable in 2008" -- again, goes against the grain for what most analysts have been saying. The turn-around plan is working, and it sounds to me that ETFC will raise more than enough capital to cover losses, especially with a deeply slowing trend of delinquincies, and get the company back to making money very soon. I wouldn't be surprised to see a profit in Q2.

Layton and the BOD did a superior job during the CC -- congratulations should be in order to them! They were pressured from many angles with questions from the analysts about dilutive measures -- the answers were consistent each time that the company is getting healthy quick and there's no need for capital outside of the measures being taken in a Shareholder Friendly fashion!!

I agree with you, Cindy, that $5 and $6 should be a given at this point. The company's book value and cash alone would dictate it. But I wouldn't be surprised to see investors rushing back to ETFC now and driving it much higher... where it belongs!