E-trade may not survive despite economic condition improved

Increasing debate about the possibility of E-trade bankruptcy grabs me attention. E-trade, the one of biggest brokerage service provider has been experiencing the most difficult time in it’s lifetime. Many service users are worry about the financial health of E-trade, whether it can survive or not.

You have to realize how is the economy has impact on Etrade, it is the one of the biggest victim from this crisis. Can anyone really trust ETFC’s 2.1 billion loss going forward estimate when in the past they repeatedly said they were ok, when they weren’t. There are some signs of turnaround that occured for etrade:

# E*Trade raised over $600 million in equity from a larger than expected common stock offering at $1.10 a share and an earlier equity purchase program.1

# E*Trade exchanged as much as $1.345 billion in debt for zero coupon bonds that are convertible to stock with Citadel Investment Group2, saving up to $148 million in annual interest expense.3

# E*Trade’s stock declined to the $1.20-$1.30 a share range from the $1.40 to $1.50 range (where it was already an attractive value), representing in my view an outstanding buying opportunity.

I don’t have any holdings in etrade, from my point of views, they are too optimistic for speculating etrade’s future, definitely not substantial. Etrade has been moving in a small range between $1.20-$1.30 for nearly a month which indicting the low confident sentiment from traders. They stay aside from trading etrade because it is too risky. This isn’t it…

Brokerage business is getting more competitive than ever:

Etrade has raised it’s trade commission as much as up to $12.99 compares to other players. Look at the chart from zecco:

Many people are complain about Etrade account restrictions.

“What’s startling is the number of commenters on Mr. B’s posts who report the same experiences. For example, one writes:

I am getting tired of trying to get the restrictions off my account. I have called numerous times, only for the phone people to say I couldn’t have access. What to do? Now i can’t even get through on the phone. I thought that was my money. What’s really going on? I think I did everything to get the restrictions off anyway. I want the money to buy a farm and why shouldn’t i be able to get it if I have it? It’s my money, it’s my money, it’s my money, darn it

Note how in particular, most account holders with these experiences are new customers. In a time when E*Trade desperately needs to increase revenue in order to compensate for its above-average cost of debt, losing enough new customers could really hamper the broker’s ability to get ahead.” E*Trade’s Customers Are Not Happy!

E-Trade to exit retail mortgage origination business

SAN FRANCISCO (MarketWatch) — E-Trade Financial Corp. said it decided in April
to exit the retail mortgage origination business, its last remaining loan
origination channel, according to a Securities and Exchange Commission filing
late Friday. The company said it will partner with a third party company to
provide customers access to real estate loans after it exits the business.
E-Trade said in the filing it originated about $116 million in one- to
four-family loans through the business during the three months ended March 31.

ETrade plans to exit institutional business

BOSTON (Reuters) - Online brokerage E*Trade Financial (ETFC.O) said on Tuesday that it will exit the U.S. institutional sales business as it tries to streamline operations, but analysts still question its financial health.

“Upon further review of the core business and as part of last month’s announced turnaround plan, we’ve decided to divest ourselves completely of our institutional sales business as the scale of the business did not warrant the expense of capital,” ETrade spokeswoman Pamela Erickson said.

Roughly 30 jobs will be cut, Erickson said.

The future doesn’t look so good for etrade:

All real estate slumps usually take a decade or so to recover.

E*Trade has $12 billion in home equity loans. Based on most economic data, those loans are losing value every day.

The single most relevant factor regarding home prices is WAGES. In the absence of a credit bubble, folks must make money in order to be able to qualify for bigger and bigger loans, leading to higher values.

Since wages are and have been falling for most/many, home values should return to 1996 levels and then trade sideways for at least a decade before rising.

Unless jobs start paying more—if you are upside down, better to start over than wait for appreciation that may be 10 yrs off.

The Alt A loans are just beginning to foreclose (which includes MTA Option Arms and there are many billions of dollars of those) and then Prime loans will follow.

The foreclosure waves should cease by the middle of 2011, but don’t assume that will automatically lead to higher values right away…

Also do not forget the baby boomers will be sellers and not buyers, leading to more and more inventory, lower prices.

When people start talking about bankruptcy of any company, more or less, it’s customers will lose confident in the it and likely to leave it for somewhere safer.

Increasing competition in brokerage business, shutting down more business, losing customers, dilution shares in low $1, gloomy future real estate market and mountain high of debts, there is still no sign of holding this stock yet. If you want to talk about it’s recovery, it could be up for years. Maybe $1.20-$1.30 is the bottom, but it may not move much through next year or the year after that.

Alex, Mai

Related Posts:

• What makes you think E-trade can survive?
• Just received an email from Etrade in the UK:
• E*TRADE Financial (ETFC) is on the verge of bankruptcy
• Has Bernanke Perjured Himself?
• Must-Read: The age of hope follows the day of reckoning.

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