E*TRADE Financial (ETFC) is on the verge of bankruptcy
By Daniel at 4 July, 2009, 4:32 pm
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ETFC is not going to be bought out. No one is going to buy a company that still has massive loan losses going forwards. Be real- 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.
The company has some serious financial issues. Has their situation improved?Yes, but the big questions remains have they done enough to keep the OTS off their backs in the future. Six to 12 months from now will be the telling point. If loan losses continue at their current pace ETFC will be forced again to try and raise capital. As you all witnessed, raising capital hurts existing shareholders. My feeling at this time is that they are going to run out of money again and be forced to raise more money, that is probably what they are thinking also because of the huge increase in authorized shares they want to put in. Existing shareholders could be diluted another 300% if all the authorized shares get issued. That is huge.
All real estate slumps usually take a decade or so to recover.
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.
What else ETFC can do to survive or delay the bankruptcy?
Raising commission fees from traders, keep begging the Fed for a bailout as like banks did or manipulating people to believe real estate outlook is improving or continuous to issue shares till its completely worthless.
Filling chapter 11 will be a good solution for ETFC which can enable it to exit the obligation of paying off the mountain of debts and continuous to run it’s operation.
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