Etrade Anyone?

[tgotch]

Citi Investment Research has slashed their rating on Etrade, and mentioned that bankruptcy is not out of the question.

Anyone using Etrade? Might be time to investigate a little deaper...


Linky:
Herb Greenberg » Blog Archive » Citi Utters "B" Word on E-Trade

 

[twaddle]

I saw that -- etrade down 58% today! Another amazing example of single-issue risk showing up where you least expect it.

I actually know the guy who sold them their mortgage business. He's out of it now (after replicating the same deal with IAC) and just messes around with boats.

 

[HobbyDave]

It is my understanding that their actual exposure to sub-prime is very limited. It still could be upwards of $500M in the worse case scenario, but that is well below what they could afford in a worst case scenario.

The biggest issue is if this is blown out of proportion and they have too many customers abandon their brokerage / banking services. It is my understanding that these services comprise of a vast percentage of their revenue, and that business has been growing.

I've seen a number of mentions as well online (so taken with a grain of salt), that if they do run into financial problems with their loan portfolio, a more flush company may purchase them for their rapidly growing financial services. Especially at their current discount

 

[maddythebeagle]

I use them for an online savings account for a limited amount of money....certainly less than 100k...seems like this might be a bit of fear mongering...

 

[HobbyDave]

Here's one quote of many online today:

Early Monday, Citi Investment Research analyst Prashant Bhatia laid out a worst-case scenario for E-Trade, saying the writedowns and a Securities and Exchange Commission inquiry could lead to a significant number of clients closing accounts. Bhatia pegged E-Trade's chances of filing for bankruptcy at 15 percent.
But other analysts said the risk of a run on deposits was fairly low, exacerbated only by the Citi note itself. Fox-Pitt, Kelton analyst David Trone said the risk of such a run was 5 percent before the Citi note but more like 20 percent afterward.

Yes, it sounds exactly like fear mongering. I've seen a number of posts that the Citi analyst in question has been negative about etrade for years. This single report "oh, they could go bankrupt!" is really the cause of the most concern. The loans themselves are not really the problem, it's the chance that people will panic and close their accounts.. which is what it seems this analyst may be trying to accomplish.

From everything I've read, I'm tempted to buy a block of shares tomorrow. I could be wrong, but it seems that other analysts are stepping up & discounting that Citi analysts worries, and that etrade is in a good position if they can get away from the bad press. Their P/E ratio is incredibly low as well, so hey, might get something cheap

 

[Danny]

Man am I glad I didn't move my brokerage accounts to them even though they were top rated. Thanks to this board telling me how good Fidelity & Schwab is...I've been waiting for some CDs to mature before moving from TDWaterhouse. Course, this kind of news makes me wonder how TD & Schwab & Fidelity run their ships. I do have a fair amount in TD's US Government Money Fund - That would seem to be safe...

 

[Callie]

My company adminsters their ESOP (employee stock owenership plab) through Etrade. The plan does not buy shares until the end of the period, but holds the money until then. Do you think that is safe? I would guess my company would be on the hook for it also.

 

[lifeisgood]

I have to say that it is very unnerving. I have over 1/3 of my nest egg with them, way over the FDIC limit in their bank and the corresponding federal limit on the brokerage side. I've been reading "The Black Swan"and "Fooled by Randomness", so the fear of sudden implosions is on my mind. I don't own the stock, but what happens if there is a run? Will my assets get frozen? Didn't the feds bail out depositors who had more than the FDIC limit in previous meltdowns?

I find some of the above comments reassuring, that it's a post by a competitor. Could also sucker me in to staying on.

Signed,
Nervous

 

[growing_older]

If you have over the insurance limits in the eTrade bank, I'd think seriously about getting back under the limit fast. eTrade may be too big to let fail, but if there are problems why would you want to be exposed to that risk?

I should also add that my personal experiences with eTrade customer service convinced me to move all my assets elsewhere some years ago. I have very little confidence in their ability or intention of doing the right thing, whether by deliberate action or just bad customer service. YMMV.

 

[cyclone6]

I too have a huge investment with ETrade. Virtually all I have. Right now I still have over 600k in the brokerage, just barely over 100k in the bank. 250k in iras.

These problems started back in August with "phase 1" of the credit crunch, and ETrade took a big hit then. At that time I had something like 300k in their complete savings account. I moved a bunch of the cash from the bank to the brokerage and bought some brokerage CDs instead (each FDIC insured to 100k - as long as you are only holding 100k in each individual bank). That brought my total holdings in ETrade bank to less than 100k. It has since grown over 100k, so today I moved another chunk of money to Emigrant direct to get back below 100k in the bank.

I was unnerved enough in Aug to look into this a bit. From what I've been able to glean, and learn from the NetBank collapse (I was not involved with NetBank, but the case is illustrative in case the worst comes to pass for Etrade):

For the bank: Deposits are insured to 100k for an individual account. 200k for a joint account. If you happen to have both an individual and joint account, 200k per person (100k each for the individual accounts, and 100K of the 200k held jointly). When NetBank fell, FDIC issued a notice on Friday afternoon, and the funds were available through ING immediately (up to FDIC insurance limits). The statement said that amounts above the FDIC insurance would become part of the following proceedings (with an average return of like 60-75% of the above FDIC monies...)

SIPC: protects missing securities - up to 500k (including 100k for cash). The key here is that the brokerage does not own your securities, you do. Only in the case of fraud would this even be an issue. For instance, lets assume you have 1200k worth of securities, and ETrade fails. Scwhab takes over the accounts, you log on to your new Schwab account, and 300k worth of stocks you owned are not there. SIPC will replace those - up to the 500k. But the 500k starts after all assets are transferred - its not your total account value. So I really think there is very little to worry about here. Plus ETrade has significant additional insurance above the SIPC limits - after all assets are transferred.

So in my case I'm not too worried about the brokerage part of the equation - but would seriously consider getting the bank side of the equation <100k. But do make sure you keep (or download) your latest statements in case you have to prove what securites/money you had...

For what its worth.

 

[Spanky]

I have less than $100K in a saving account. It may be time to move it to Vanguard.

 

[RetireeRobert]

I have less than $100K in a saving account. It may be time to move it to Vanguard.

Vanguard would be a very good choice. If Vanguard is ever on the brink of going bellyup, well things would have to be so bad, like the Great Depression times ten, we may as well all be ready to kiss it goodbye.

 

[ERD50]

just to reconfirm what a few posters said, the real risk (from what I understand, and have been told by people that appear to be 'in-the-know) is money held (above FDIC limits) in the E-Trade bank, like their sweep accounts.

I don't know that the risk will ever turn into a reality, but with high-quality options available to us, I just can't see any reason not to take some action.

My first action is going to be to convert any money in their banks into actual stocks/funds. That way, e-trade is only holding paper receipts for me, and those should not be tied in any way (that I know of) to any bad loans or credit problems they may have.

The idea of even the possibility of losing 30% on a MM would just make me sick. If I lose it on a trade, that's part of the deal, you win some you lose some. But a MM - I'd be sick.

What's a good place if I want to do some option selling, maybe a bit of option buying from time-to-time? Schwab?

-ERD50

 

[JohnDoe]

I take it my Coverdell is safe with Etrade. I was looking to roll it into a 529 with another firm, though.

 

[ERD50]

I take it my Coverdell is safe with Etrade. I was looking to roll it into a 529 with another firm, though.

I think the key is (and someone please correct me if I'm wrong), what is it invested in?

If it is in mutual funds, stocks etc, probably no problem. In cases like that, E-Trade is just holding the paper that says you own it, right? If it is in any E-Trade banking accounts, and above the FDIC limits, that may be a concern.

This is my understanding, I'm no expert, do your own DD, just passing on what I've heard that seems sound to me.

-ERD50

 

[HobbyDave]

As others have said, the only concern I would have is if my bank account was over 100k, but I would never let it grow that large at a single bank. I hate not being covered in the event of a major problem at one institution.

On a side note, I had tried to purchase 1k shares yesterday afternoon for gambling purposes, but I couldn't get my funds transferred fast enough, so I figured I'd buy this morning. What happens? Already was up 18% before I had a chance to act. Sad *sigh* My gambling would have worked!

 

[Callie]

I sent a note to my company's treasurer, asking about our ESPP deposites and she said they would post something late today or tomorrow. This tells me they are likely not safe, or she would have just said so. I lowered my contribution from 15% to 1% (if I did zero they would close me out). Not in enough time for this week's paycheck though.

Also, my hub works for a financial services company and he is on a conf call to handle the huge influx of account transfers coming from ETrade. Not sure if this is a "run" or not, but large amounts of account holders are moving.

 

[eridanus]

nm


(Wrong forum.)

 

[glen12]

My hunch is that E*Trade will be okay.....their stockholders will pay a price when all of their loans are written down, but the franchise will survive, either after being aquired by another institution or after their equity stake is diluted by new capital taking a conrolling interest. The brokerage franchise is considered to by first rate. It's the stupid mortgage stuff on the banking side that is hemoraging. Write down the mortgages and E*Trade becomes a VERY attractive aquisition.

That being said, I must confess that I moved a bunch of money out of the bank yesterday in order to get under the $100K level!

 

[Maurice]

I have a lot invested through etrade as well.

Can anyone clarify something about SIPC limits... specifically, I assume the 500k is per beneficial owner. Thus the account that I have with DW as JTWROS is technically a different 'customer' than my IRA which is in my name alone, right?

Assuming thats the case, I'm ok. I have about 800k invested through Etrade but its pretty evenly split between me, DW, and me+DW. I'm under the cash limit at etrade bank as well.