I would hardly describe the conference call as spectacular. Yes, their EPS beat analyst estimates. However, top line revenues are down YoY and so are earnings if you dismiss the income tax benefit. Finally, Daily Average Revenue Trades (DARTS), the prime source of income for these kinds of discount brokerage firms are also down YoY. This last part should be of no particular surprise given the extremely low volume involved in the overall market for several weeks now.
I'm not short; I closed my ETFC positions days ago. But if you were looking for a huge gap tomorrow, I would perhaps lower my expectations as I said, this was more mixed than anything.
I guess the issues are the following - with respect to the stock price being impacted.
12.5% - capital redeployment will this happen this year - will the regulator allow it - (going to the market to refiancne was kind of shot down - something about higher discount taken earlier) They will submit to regulator end of this quarter and hopefully have an answer in time for Nov (end of 3rd quarter earnings release).
Provision (qualitative suprises) - what the heck will the new regulator force on Etrade - Management was confident that not a whole lot - but you never know - wild card as always. Last year was about 441 million, I think 2012 will be around $350.
The NIM rate (will it be 3 or 2.4) issue might a bit over blown (in my opinion). The $1 Billion net income future (stay the course) slide - see etrade investor relations - raymond james presentation on March 6 will take quite some time (10 years - agency funding comments - but they do not factor the increase in total assets). The reason I say it is a bit overblown - in 2011 - interest revenue was about 1.22 billion. This year will be about $1.1 billion (275 x4) I think. Their goal was about 1.3 billion in a normalized enviornemnt - I think I can live with 1.1 or 1.15 billion interest income - and get to 800 or 850 million pre tax - in say 2 or 3 years?
NIM compensated to an extent by the increase in total assets (was it just first quarter, heard some comments not sure what they meant). I hope they get facebook corporat account - when they go public!.
DART - will depend on retail engagement - everybody (AMTD, SCHW, ETFC) are all on the same boat
Housing prices - not sure if there is any more suprises left on this one
People continuing to pay loans - they are getting seasoned every day.
Europe - not directly, but I guess indirectly with the sentiment, DART etc..
S&P high beta - Etrade will continue to be wipped around and move a bit steep when S&P goes down, and not so much when S&P goes up. Hopefull this will decouple soon.
Amortization of second - the management is not overly concerned (run off the books - and seasoning)?
Here is my net revenue prediction (and end of the year stock price)
2012 - $250 million net profit (reduction in provision). Stock price $13
2013 - $350 to $400 net profit (reduction in provision plus about $100 from 12.5 capital deployment) - Stock price 15
2014 - $500 (reduction in provision) - stock price 17