E*Trade Trouble

**Rake** Mon Nov 12, 2007 1:06 pm

E*Trade Trouble
Guys,
How many of you uses E*Trade?
I was worried that ETrade might become bankcrupted. See the following news:

"Citi Investment Research analyst Prashant Bhatia cut E-Trade's rating to "Sell" from "Hold." Bhatia said there is a 15 percent chance E-Trade will have to declare bankruptcy and the company may be forced to sell loans and securities at a significant discount."

If it is bankrupt, could anyone comment on the effect on those having accounts with etrade?

Thanks.

-Rake

**blast_investor** Mon Nov 12, 2007 2:10 pm

Hi Rake,

Etrade trouble is mainly in banking division, which should be the seperate business entity from brokerage business. This means that even if banking side is going bankcrupt, the brokerage side can still continue business as usual. Etrade brokerage business can survive in my opinion.

However, I would take immediate cautious steps too on Etrade brokerage accounts. The risk is there too on Etrade brokerage side.

First all, SIPC has dollar limitation on brokerage account. See Etrade disclosure:
https://us.etrade.com/e/t/welcome/securityguarantee

I would take partial money out if the money is above SIPC protection limitation. SIPC is government sponsored, which can be trusted much more than private insurance.

Second, if you decide to keep Etrade account, keep a record of recent brokerage statement at hand so that you have a proof of records in case of trouble.

Whether to change broker or not is another issue. But above 2 steps should be wise move in my opinion to protect against trouble in Etrade.

**blast_investor** Mon Nov 12, 2007 2:23 pm

Hi Rake,

Just clarification, I believe the banking side of Etrade is likely to go bankrupt. The information on mortgage is not very clear cut, lots of unknown there.

But Etrade brokerage side may survive without bankruptcy even if banking side is going bankrupt because it is separate legal entity.

This is something to consider.

At this stage, it is wise to consider to change broker if you can.

**lzhang** Mon Nov 12, 2007 4:11 pm

The problem with its bank side is mainly from its home equity loans.

It has about $2.8B (on pg 21) ABS, of which $450M is expected to be written down. Its other CDO are expected to decline in its value, but no that severe.

That is still not too bad. But, in its own loan portfolio, it has about $12B home equity loan (on pg 20). The quality of those loans is questionable as well. On pg 26, it lists the details of those loans. If we write down 50% of the most vulnerable loans, which are for FICO<700 and LTV/CLTV>80%. We may end up with $1.5~2B.

So it needs to further write down up to about $2~3B.

Its balance sheet is really weak.

If we value its broker business at about $5B. After $2~3B write down from its bank business, we may have about $2~3B left. If it has to be liquidated, I do not think we have anything left because the loss would be much larger than $2~3B writedown.

blast_investor wrote:
Just clarification, I believe the banking side of Etrade is likely to go bankrupt. The information on mortgage is not very clear cut, lots of unknown there.

http://www.sec.gov/Archives/edgar/data/1015780/000119312507242441/d10q.htm