raptor

Countering the AP's 'E*Trade Financial Earnings Preview'

With Shares Low, E*Trade (ETFC) Becomes Buy-Out Target, Again
E*Trade (ETFC) had a bad quarter, in large part due to provisions for loan losses of $319 million. The company posted a net loss for the quarter of $119 million against a profit of $158 million in the same quarter last year.

E*Trade did have $535 million in revenue. That was down from $669 million last year, but there are a number of signs that the firm's discount brokerage operation is in good shape.

The broker unit's retail customers increased 22,000 from the prior quarter, and were up 90,000 from the previous year. And, assets per customer rose 17% to $52,172.

At $634 million in revenue E*Trade rival TDAmeritrade (AMTD) is not much larger. It is substantially more profitable, having brought n $204 million in net income last quarter.

The huge difference between the two companies is that AMTD has a market cap of $11.2 billion compared to ETFC's of $1.4 billion.

A potential buyer of E*Trade would to be convinced that the bad assets on the broker's balance sheet would put them into a hole big enough to kill $10 billion in value.

E*Trade still has a profitable discount brokerage business. Less than a week ago, the stock traded at $4. It is now down close to $3.

Is the company worth $4 or $5 a shares to Schwab (SCHW) or AMTD? Either of the brokers could take out large amounts of duplicated costs, and spin off the bad assets.

If E*Trade's stock stays at $3, it is going to be sold.

Douglas A. McIntyre

www.247wallst.com/2008...

Countering the AP's 'E*Trade Financial Earnings Preview'

Given the size and clarity of that cushion and the
HELOC loss trends, we remain comfortable that
ETFC will be able to bear the weight of the
expected credit losses. We reiterate our long-term
investment thesis that values ETFC on a
fundamental basis on 2011 earnings power (post
mortgage-write-offs). While we acknowledge that
the shares may indeed be quite volatile in the near
term given uncertainty and volatility in the financial
market and mortgage assets in particular, we
believe that the shares represent an attractive
risk-reward for investors with an above average
risk tolerance and holding period.
United States of America
Financial Services

Countering the AP's 'E*Trade Financial Earnings Preview'

Lehman Research Report posted yesterday 50 minutes ago
July 23, 2008
E*TRADE Financial (ETFC - US$ 4.05) 1-Overweight
Change of Earnings Forecast
HELOC Loss Trends Becoming Clearer
Investment Conclusion
We believe the main takeaway from ETFC's 2Q08
results and conference call is that the HELOC
portfolio is well in hand and that losses are unlikely
to extend substantially past the company's capital
provisions. We believe the $620mm of excess
capital currently at the bank plus the $660mm of
net proceeds from asset sales at the parent
company (that ETFC could downstream to the
bank for regulatory capital purposes) would allow
for $2bn of incremental pre-tax writedowns on top
of our already modeled $2bn of provisions from
2007-2009.

Summary

Countering the AP's 'E*Trade Financial Earnings Preview'

Cindy, what do you think going forward?

Countering the AP's 'E*Trade Financial Earnings Preview'

Teething Pain at E*Trade
By Rick Aristotle Munarriz July 23, 2008 Comments (1)

1 Recommendation

The "E" in E*Trade (Nasdaq: ETFC) probably stands for "electronic." It most certainly doesn't stand for "empty."

The discount broker delivered a rough second-quarter report last night. Net revenue fell by a sharp 20% to $532 million. The company posted a wider-than-expected deficit of $0.19 a share, a far cry from the $0.37 a share it earned a year earlier. However, like the company's iconic trading baby in its recent wave of televised ads, you can't judge this company by the aroma of its diaper.

The sluggish broker continues to bounce back after last year's financial debacle. During the quarter itself, E*Trade reduced debt, sold non-core assets, slashed expenses, reduced exposure to undrawn home equity lines, and actually grew its user base.

It seems those memorable baby ads are working. The company closed out the three-month period with 22,000 more retail customers -- and 30,000 more retail accounts -- than when it started.

Daily average revenue trades fell by 5% sequentially, but actually clocked in 7% higher than last year's second quarter. True, rival TD AMERITRADE (Nasdaq: AMTD) posted much healthier client trading activity numbers last week, while bellwether Charles Schwab (Nasdaq: SCHW) came through with a refreshing top-line spurt that E*Trade still can't touch. Then again, E*Trade's peers aren’t trading at value-meal prices.

E*Trade is paying the price for digging too deep into mainstream banking, but it's also been unlucky in its own trades. The company will take a charge during the current quarter, after cashing out of most of its preferred equity positions in Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) at a hefty loss earlier this month.

The stock took an after-hours hit on the report, as the company warned that it may not return to profitability from continuing operations later this year, as originally expected. That's good for a smack or two, but I'm keeping my eye on the retail brokerage growth instead. E*Trade will get things right on the way to the bottom line. Future asset hits will always be a risk. However, as long as the company keeps signing up more retail users than it loses, E*Trade will grow in relevance.

If growth continues and the stock doesn't follow, isn't it just a matter of time before TD AMERITRADE, Schwab, or any other financial-services heavy looking for a little skin in the discount-brokerage game gets won over by the E*Trade baby and its toddler-sized share price?

Hang in there, E*Trade. Just make sure you keep clean diapers handy, in case the next few quarters remain a bit on the messy side.