this will be a two or three part message. First off, there will be in my view a substantial, non-cash charge this quarter for the debt exchange. I am not 100% sure of this but I believe ETFC wrote down the value of its debt over the past few years (allowed now under GAAP which reflects the view that if a company's assets deteriorate they are written down and if your own issued debt drops in value, well that drop in value translates to a gain by the same rationale). I think the loss will be around $800 million as to induce folks to convert the convert price was well below market ($1.02 versus $1.45 or so). So we have that one time, non-cash charge. I don't see it is key. What I do see as key follows in my second message.
my second point is that the key to the company's return to profitability (I think it will happen in the fourth quarter of this year) is loan loss provisioning. One needs to focus on delinquencies from 30-179 days inclusive (after 179 days the loans are marked to recoverable value, whether in foreclosure or not and I trust the company to do this fairly and consistently). In 3Q of 2008, delinquencies were $$1213483, y/e/2008 =$1553,563, 1Q '09=$1,741,000 and last quarter $1,582,000. I think delinquencies have peaked. Reserves have gone up at a faster rate, 3q '08-$874,222, y/e '08=$1080611, first quarter this year $1,200,808 and last quarter $1,218,939.I think delinquencies drop by another $150,000 this quarter. What does this do to provisioning? Well lets assume they have to charge off this quarter another $400 million and let us assume they are comfortable with provisions being 77% of delinquencies (in my Q3 estimate being $1,432,000(down $500,000 from Q2). We reduce provisions by the $400 million to $818,939. To derive provision expense I take 77% of $1,432,000 (the new delinquency estimate) and get$1,102,640. I think they only need to provision $283,701, this is below their own estimate of $300 million to $375 million. I expect the 3Q loss to be a tad under $70 million, cutting the seond quarter loss in half! So this is what to watch imho. The reefer
Everyone here thats been here a long time is probably comforatble in saying that there could be a small loss to breakeven (optimistic) for third quarter.
There is always some surprise. I heard that Etrade found that they had taken $1.2B in deposits in September which happened to be in Confederate currency. Don Layton was working the teller window that day, and thought it was funny at the time, as the actual bills were the size of a shoebox top, but accepted the bills because the presidents picture was on the bills. BIG WRITE-DOWN.
THere is not much more to prognosticate about, or even spend time prognosticating. Thats why there is so much talk about politics, Obama (MMM MMM MMM), Wells Fargo, Elvis' potatos, lewdogs legal problems, etc... you see it just doesn't FUCKING MATTER ANY MORE.