Citi Utters “B” Word on E-Trade
November 11, 2007
Citi Investment Research analyst Prashant Bhatia, a longtime critic of E-Trade, has slashed his rating on the bank in a report Sunday headlined, “Bankruptcy risk cannot be ruled out.”
Following Friday’s news of an SEC investigation, further mortgage-related losses and the withdrawal of earnings guidance, Bhatia wrote, “The continued negative news flow about charges resulting from its mortgage & CDO exposure, an SEC inquiry, and continued deterioration in its financial condition, all increase the likelihood of significant client attrition.”
He also said: “Management lowered its earnings guidance for the 5th time in 8 months and now management believes that it is no longer beneficial to provide earnings expectations for 2007.
The extent of poor risk management in our view, has put the viability of the franchise at risk. Compared to management, the more relevant constituents at this point are
the BOD, the auditors and the regulators. Most important is, how clients will react.”
This story will likely evolve Monday. As I wrote Friday, a key part of this story is that E-Trade had insisted its loans were high quality. As President Jarrett Lilien told MarketWatch’s Murray Coleman on October 17: “Our issue is that the value of high quality loans is underperforming.”
Bankruptcy not an option. I believe etrade wrote of most of this debt with the last 20 point slide. I believe this stock is valued at 7-9 dollars. It has 1000 new customers a day. Not too many business can say this. Banks get money from new accounts, they invest it off shore and make about 20% on their investments and only pay back 4.4. Hell you can get 10% off shore with as little as 300k. The more customers the more money comming in. They are making 150k plus for every million comming in..
You are truly a MORON to believe something that was said and posted back in November 2007. Hello, it's February 2008 now and since then, ETFC has done NOTHING but positives in proving to investors and their clients that they aren't going anywhere.
If ETFC was going to file for bankruptcy, they would have done so already back when Bhatia and his foolish company mentioned the "B" word. What you probably didn't know and never will know is that Bhatia himself made that comment just so he could scoop up ETFC shares for next to nothing. Obviously the ETFC board members aren't ignoring the fact that the stock price is WAY too low at this point, and they spent $2MM of their own money to scoop us as many shares as possible. Sure you can go ahead and say $2MM is chump change, but to the directors who probably make high six, maybe even seven figures, that's still considered a handsome amount of stock purchased on the open market.
If ETFC was truly going bankrupt, they'd be much more inclined at this point to just cut everything they can, lay off a obscene number of their workforce, not spend money on advertising (VERY SUCCESSFUL I might add) in the Superbowl and have it turn out to be one of most memorable in viewers' minds, not report better than expected earnings and go forth with their restructuring plan, etc.
You can't overlook at the fact that ETFC is righting the ship as we speak, and when this is all said and done, they will come out ahead of SCH and AMTD combined. Do you even know how badly AMTD and SCH want ETFC's brokerage business? They'd give their left and right nuts for it, and worst case scenario, both will be fighting to purchase ETFC's brokerage assets no matter how their lending assets play out. Either way, stock investors in ETFC will win and the $5/share is rediculous for just THAT piece of the business. Who cares how much ETFC will lose in the loan business. The fact remains that brokerages all over the country are dying for E-Trade's brokerage business and will put them in no-man's land if they can get them. You can bet there will be a bidding war for those assets, and ETFC investors will win especially at these prices.
Bhatia is either a fool or he is the smartest analyst on the planet for fooling people like you thinking E-Trade will fold its business in the next few days. Well, it's been 3 months now, and all I see if E-Trade improving their numbers, gaining positive traction, gaining customer base even with all the negative scrutiny it's faced, and certainly NO BANKRUPTCY on the horizon. Guess you just became Bhatia's bitch.
ETFC will go $20 by end of year. Mark these words.
You know what I like about this posting?, ... it shows that some folks are desperate enough, that they will post something like this, ... meaning that they have no "negative news" to post any more.
So, in a way, I see the posting of this as a positive sign that means that the "shorts" have pretty much lost all hope, and are "grasping at straws" for their last chance of air to breath.