ETrade Exits Wholesale Mortgage Business, Warns Investors About Subprime Fallout
E*Trade is warning its investors that profits will come in 31% below estimates and that it is exiting the wholesale mortgage business and "streamlining" its direct mortgage operation due to the "disturbance in the credit markets."
E*Trade is reassuring its customers that it remains healthy despite the restructuring. From E*Trade's letter to its customers:
Today, we took proactive measures to further insulate E*TRADE from the recent declines in the credit markets. You can feel assured that the measures we've taken are non-issues for our customers. Although industry-wide liquidity and credit concerns are making daily headlines, E*TRADE's business fundamentals are firmly on track, our balance sheet is strong, we have substantial capital and we continue to be profitable - with projected earnings of approximately $500 million in 2007.There is no word on how many positions might be cut as part of the restructuring.
E-Trade to Restructure on Credit Worries [CNNMoney]
Company Exits Wholesale Mortgage, Restructures Institutional Brokerage, And Revises 2007 Guidance (Press Release) [E*Trade]
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The company went after more affluent customers, using "the massive growth in cash" from them to increase its real-estate portfolio. Sounded good at the time, and Caplan believes it sounds just as good today. The difference between his company and many other mortgage investors, he says, was that E-Trade stuck with higher-quality "generic" first mortgages, accepting smaller returns in exchange.
The Fed Meetings will be interesting. The current line is that Bernacke will let those who over-speculated to dangle in the financial winds.
They sensed a great disturbance in the market, like millions of unqualified homebuyers suddenly cried out in terror and were suddenly silenced. I fear something terrible has happened.
I don't know if this was posted already, but ETrade dropped its high interest savings account to 4.70%.
E*Trade's profits are down because of its reliance on questionable subprime lending practices?
Good. They are getting exactly what they deserve.