E*Trade: We're Not Going To Go Bankrupt, Honest

Analysts have downgraded E*Trade after the online broker announced further mortgage-related losses. E*Trade has responded with a message to their customers claiming that they could absorb a loss of $1 billion and still remain “well capitalized.” Translated, the message reads, “Please, please don’t pull your deposits!”

E*Trade says:

November 12, 2007

This is a challenging time for the financial services industry. Bad news in the credit, housing, and stock markets continues to dominate and E*TRADE is not immune to these market conditions.

However, you, our customers, should know that we continue to be well capitalized by regulatory standards. As a matter of fact, we could absorb an immediate write down in excess of $1 billion and still remain well capitalized. Nobody knows for certain what the ultimate impact will be from these markets, but it is our expectation that news in the market will get worse before it gets better and, armed with these expectations, we are taking prudent measures to effectively manage the company’s balance sheet.

We will continue to earn your confidence, providing state-of-the-art asset protection, including E*TRADE’s Complete Protection Guarantee, SIPC Protection for E*TRADE Securities customers and FDIC Insurance for E*TRADE Bank customers.

We appreciate the opportunity to continue to serve you and your investing needs.

–Jarrett Lilien
President, COO and Director, E*TRADE FINANCIAL

Despite the reassuring message, Citigroup analyst Prashant Bhatia, who downgraded E*Trade from “hold” to “sell” thinks E*Trades customers may “withdraw assets first, and ask questions later.”

E*Trade says can absorb writedown up to $1 billion [Reuters]

Comments

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  1. lalala1949 says:

    I’m no fan of etrade but there’s no reason for consumerist scare mongering tactics. Bank deposits are FDIC insured up to $100,000 so only those richconsumerist.com readers need to be worried.

  2. MatthewVA says:

    Is it just b/c of the “housing/credit” crises that this is happening?

    I want to know who are their competitors online? Maybe ppl want to “talk to Chuck” instead”? Seems like they are the the ones out in the cold now, so much for yheir commercials about brokers being left out/lonely.

  3. ironchef says:

    it’s a shame. Etrade is still one of the best brokerages out there. Damn that stupid loan division buckling from the sub prime fallout.

  4. DjSnipSnip says:

    I pulled my < $4K money but not because of fear, but because they charge $13 to buy and $13 to sell. Also, it took them 7 business days to transfer money from my BOA to their account. Also, no real time streaming.
    Scottrade charges $7, comes with free real time streaming and takes 3 business days for transfers, just like all other institutions I know of and bank with…

  5. Antediluvian says:

    We’re still fond of Etrade in my household. Moved most of our smaller retirement accounts there to consolidate for easier and better personal management.

  6. Joe_Bloe says:

    i wonder if problems at the banking division could affect securities? i hold significant shares of two E*Trade mutual funds.

  7. BigNutty says:

    The letter to their customers is a tactic to try and stop the media scare that is going to be aimed at the individual investor. I think it’s a good way to communicate with your customers rather than let your customers worry about their investments from all the media hype.

  8. iamme99 says:

    Old saying goes “Live by the sword, die by the sword”.

    Too many companies that should have known better went out on the limb of risk to eke a few pennies more out of their portfolios. Now they are having to pay the price. No tears will be shed on my part….

  9. Beerad says:

    Wait a minute, I don’t have your money here. It’s in Bill’s house, and Fred’s house!

  10. Adam Hyland says:

    @lalala1949:

    It isn’t scare mongering. Also, FDIC insurance does relate to E trades mutual funds divisions, where negative returns are not protected against.

  11. Snarkysnake says:

    @Joe_Bloe:

    Uh, No. The securities industry has its own FDIC-like agency that will make sure that what you own stays in your account so that if the manegement decides to take off for Rio with a couple of 16 year old cuties and a couple of gallons of hooch (and your funds) the government will make you whole. This agency is the SIPC (Securities Investor Protection Corporation)and they have your back if your brokerage goes Tango Uniform. Note,however they cannot and will not protect you from scam investments , penny stock swindles and the like. They just guarantee that if your broker is broker than you are at the end of the day,that you can get your shares and securities and move them somewhere else. Coverage is $500,000 for securities (but only 100k for cash left with your broker)so most folks dont have anything to worry about.That said,keep an eye on the brokerage- retail investors will usually be the very last to know when they are cooked (Usually they make an announcement AFTER the market is closed and it’s too late to do anything)…

  12. Adam Hyland says:

    @Snarkysnake:

    Still. None of the financial insurance schemes protect investors against negative returns due to companies investing heavily in CDO’s and mortgages.

  13. iamme99 says:

    E*Trade has responded with a message to their customers claiming that they could absorb a loss of $1 billion and still remain “well capitalized.”

    Heard them discussing potential $5 BILLION loses on CNBC today. Oops.

  14. WisconsinDadof2 says:

    Note that this is one analyst’s opinion, which may be valid, but there are others who do not have quite the same ‘sky is falling’ attitude. Given that the investments and cash sitting in the E*trade accounts are essentially protected, rash decisions and knee jerk reactions don’t really need to come into play here. Of course, if you actually hold E*trade stock, that’s a separate issue – the stock is down nearly 90% from a year ago.

  15. lakai says:

    would this be a good time to buy just incase ?? I mean a small amount