This on Bloomberg today . . .
Nov. 12 (Bloomberg) -- E*Trade Financial Corp., the online
brokerage that forecast a decline in fourth-quarter earnings,
lost more than half its market value in New York trading after a
Citigroup Inc. analyst said there's a chance the company may go
bankrupt.
E*Trade will have to book ``significant writedowns'' this
quarter for asset-backed securities that sank in value last
month, the New York-based brokerage said in a Nov. 9 regulatory
filing. Citigroup analyst Prashant Bhatia wrote in a report
yesterday that poor management has ``put the viability of the
franchise at risk.''
Chief Executive Officer Mitchell Caplan's strategy of
building E*Trade's bank by tripling loans outstanding backfired
as more borrowers fell behind on payments and U.S. home prices
declined. The U.S. Securities and Exchange Commission also began
an informal inquiry on Oct. 17 ``into matters related to the
company's loan and securities portfolios,'' E*Trade said.
The online broker will post a loss in the fourth quarter
after setting aside $500 million in extra money for bad loans and
writedowns, Bhatia said. Clients in the company's brokerage unit
may shift their accounts to rivals, while deposits at the bank
could erode, said Bhatia, who cut his rating on the stock to
``sell'' from ``hold.''
Citigroup is ``downgrading to a sell based on the higher
probability of a run on the bank,'' Bhatia said.
`Significant Writedowns'
Rating cuts on $208 million of asset-backed securities last
month spurred a bigger-than-expected reduction in their value,
E*Trade said in the filing. While the drop will require the
company to record ``significant writedowns'' this quarter, the
company said it expects to remain ``well capitalized.'' E*Trade
also said it will no longer provide an earnings forecast because
of difficulty in valuing the securities.
The company's shares fell $4.48, or 52 percent, to $4.11 at
10:41 a.m. in New York Stock Exchange composite trading, their
lowest since March 2003. The stock has lost 82 percent of its
value this year, wiping out about $7.9 billion in market value.
E*Trade is the worst performer among the 12 stocks tracked
by the Amex Broker/Dealer Index. Shares of rivals Charles Schwab
Corp. and TD Ameritrade Holding Corp. have advanced at least 10
percent this year.
E*Trade reported its first quarterly loss in five years last
month and slashed its 2007 forecast because of rising costs for
bad debts at the online bank. For the period ended Sept. 30,
E*Trade lost $58.5 million, or 14 cents a share, compared with a
profit of $153.2 million, or 35 cents, a year earlier.
`Potential Additional Downgrades'
E*Trade said 2007 profit would be between 75 cents and 90
cents a share, cutting its forecast for a fourth time this year.
In September, the company estimated earnings of between $1.05 and
$1.15 a share.
The company said in the filing that the value of some of its
$450 million in asset-backed collateralized debt obligations had
``significant declines.''
``The writedowns will depend on future market developments,
including potential additional downgrades, and the estimated fair
values of these securities'' at the end of the year, E*Trade
said.
