Dire Straits for E Trade

Popular online broker, and bank, E Trade Financial Corporation (ETFC), may be the latest company to fall into the subprime and CDO vortex, facing trouble on November 12 as its stock traded in mid-afternoon at $3.58, down $5.01. That’s more than 58% lower Friday’s closing price of $8.59. The company filed a 10Q on Friday, November 9, and Citigroup analyst Prashant Bhatia downgraded ETFC in a Sunday, November 11, report. The analyst explained in the report that “the firm could face a potential run-on-the-bank scenario.” Bhatia’s report includes “a 15% probability of bankruptcy.” Bhatia has changed his risk rating of ETFC to “Speculative Risk.”

The Citigroup analyst’s report, obtained by Investment Advisor, listed a target price for the stock of $7.50, down from $13.00, and E Trade’s stock blew right through that $7.50 price target at the market’s opening, with the stock price opening at $5.50. As of mid-afternoon, sellers outnumbered buyers 4.5 to 1. The Citigroup report goes on to note that “50% of E Trade deposits” an aggregate $15 billion, are over the FDIC insurance limit of $100,000, “and we view these deposits as having a higher risk of leaving. The $15 billion of deposits in 57,000 accounts represent roughly 25% of E*Trade’s funding, and deposit attrition could lead to forced selling of the assets that are supported by these deposits.”